These three companies just didn't live up to Mr. Market's expectations last week. Whether the target was set by the company's own management, by Wall Street analysts, or by the market at large, that miss can have serious consequences, causing share prices to suffer in a very real way.
Sometimes, an earnings stumble is a signal to sell. But digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down. Today, these houses won't sell, turnstile clicks don't always generate cash, and some manufacturers just can't put together a decent quarter.
What's your house worth?
Let's start off with another dip in the rich pool of underperformance that is the housing market. You can take your pick of tickers, but I'll grab Centex
Centex's stock price slid down more than 8% last week, with the largest fall coming before the report. All the major homebuilders suffered early in the week as news of weaker-than-expected national home sales came in. Meritage Homes
Centex fared better than those rivals early on, losing only 3.6% of its market cap. But then came its earnings report.
Wall Street could have handled a $0.16-per-share loss (according to one analyst poll), or a $0.05 per-share profit (according to another), but the actual report dropped a massive $1.08-per-share loss on the market. Atop that low blow, management declined to offer an outlook for the rest of the year; the real estate market just doesn't seem to be predictable right now.
Ain't that just the truth, though? We can't really blame Centex for shunning forecasts in the current housing market. Times like these filter out the truly great operations from the wannabes. The trick is to find the beauty in a poorly lit scene, and poor market-leading Centex just might be among the ugliest candidates of the bunch.
No other American homebuilder carries as high a net debt as Centex's $5.1 billion. The company is in the bottom quartile of its peers when it comes to total earnings -- well, losses, really -- over the last 12 months. Yet the stock's valuation remains in the middle of the pack, at about 41% of trailing sales. In other words, if you're searching for a cheap homebuilder ready to rebound, I'd suggest looking elsewhere.
Financial roller coaster
How about theme-park operator Six Flags
That shortfall came despite higher attendance and higher revenue than last year, even though both figures surpassed expectations. It's the curse of a debt-heavy balance sheet -- those interest payments can really hurt.
Six Flags is in the middle of a long-term reorganization, with a focus on remaking itself into a profitable company running world-class amusement parks. Some underperforming locations are being sold to the highest bidder to unlock the cash value of their real estate, while the rest are seeing a steady stream of new advertising partners and fresh-faced park visitors.
Fellow Fool Rick Munarriz already did a fine job explaining the ins and outs of this report, and it's highly recommended reading. The executive summary says that Six Flags actually is a nice turnaround waiting to happen -- just not quite yet, probably. I couldn't agree more, Rick.
Put it all together for once
The last financial outcast this week is electronics manufacturer Sanmina-SCI
That's why the share price fell 15% on that report. Management blamed weak demand for its electronics components this time. It should be noted that results have fallen short of expectations in three out of the last four quarters now; each time, company executives proclaim their belief in better times ahead, based on more efficient operations. It just doesn't tend to play out that way.
None of this would have surprised an ardent Motley Fool CAPS user, though. Sanmina is a perennial bottom-feeder in the CAPS rankings. In the electronics manufacturing space, competitors like Benchmark Electronics
CAPS players much prefer those rivals' management teams to that of Sanmina, one of the dozens of businesses caught up in SEC probes over stock option grants past. You know the dealio -- feel free to look elsewhere.
This is Anders, signing off
Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps, and which really are stuck in the mud. Come back next week, and we'll take a look at another batch of mishaps and disappointments. It'll be fun and educational.
Further Foolish Reading:
- Calling In Six
- Is It Time to Get Out?
- Centex Back at the Chopping Block
- Stocks to Save Your Fortune
- Dirt Cheap Dream Stocks
Seeking great deals on unfairly punished stocks? Philip Durell and his merry band of Fools at the Motley Fool Inside Value newsletter service are standing by to help you find great stocks at ridiculously low markdowns. Try a 30-day trial subscription to see whether bargain-hunting is right for you.
Fool contributor Anders Bylund holds no position in the companies discussed this week, but he once owned a Centex-built home. Meritage Homes is a Motley Fool Stock Advisor recommendation.The Fool has a disclosure policy, and you can see Anders' current holdings for yourself.