Shares of home-appliance company Whirlpool (WHR 6.37%) got hammered this week after management offered up disappointing guidance that caused Wall Street to reset its expectations for the business. As of 10 a.m. ET Friday, Whirlpool stock was down a whopping 22% for the week, dipping to its second-lowest point this decade.
How bad is business for Whirlpool?
Whirlpool reported third-quarter results on Wednesday, and it beat expectations on both the top and bottom lines. Net sales were up 3% year over year, and earnings per share (EPS) were only down 1%. In isolation, those numbers don't look bad.
NYSE: WHR
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However, Whirlpool's profit guidance took a big hit. The company maintained its full-year net sales guidance of $19.4 billion. But it lowered its earnings guidance to $9 per share, down from a previous range of $13 per share to $15 per share. Moreover, it lowered its free-cash-flow guidance from $800 million before to just $500 million now -- a 38% reduction.
Is this the bottom for Whirlpool stock?
It might be tempting to try to time the bottom for Whirlpool stock, but investors need to recognize that no one can predict a top or bottom with certainty and consistency. Rather than trying to pick just the right moment for an entry point or an exit, investors should focus on the fundamentals.
Looking at the valuation for Whirlpool, it's undeniably attractive. The stock trades at only 11 times its lowered guidance for free cash flow. And at the current share price, its dividend yields close to 7%.
That said, this week, Whirlpool's management frequently mentioned soft consumer demand and a promotional selling environment, which is hurting its profit margins. The company believes its margins are poised to rebound next year, which would be big for the business. But right now, the market isn't seeing signs of that rebound on the horizon, and the stock will likely be stuck in the doldrums until the company's margins tangibly improve.
