These three companies just didn't live up to Mr. Market's expectations last week. 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.
Mama bear wakes up
Russian telecom giant VimpelCom
Well, no. There was plenty to like in this report, actually. Revenue rose an impressive 52% year over year, thanks to 13% more mobile subscribers and a wide rollout of high-margin services like optical fiber-to-the-building networks. Yep, some Russians can get the equivalent of Verizon's
VimpelCom will stay exciting for years, because the company's core market happens to be the Russian bear as it continues to emerge from a long winter hibernation after communism. Around Russia's edges, the company reaches into former Soviet states like Armenia and Tajikistan. And if that wasn't enough, VimpelCom is just starting to build operations in Southeast Asian nations like Cambodia and Vietnam. "Emerging" describes all of these markets pretty well, and VimpelCom should have plenty of growing left to do right at home.
This is a five-star CAPS stock whose share price is lower than it was a year ago, despite torrid sales growth and stronger cash flows. If there's anything crazy about VimpelCom's shares, it would be that they're relatively cheap.
Dell fell off a cliff
Computer seller Dell
Earnings per share of $0.31 fell a nickel short of the average analyst estimate. It's also a decline from last year, despite 11% higher sales. Net income dropped 17%, more than offsetting a reduction in the number of shares outstanding. Share dilution is not the problem here, folks.
The issues go deeper than that. Dell's famously slim margins were squeezed into an even slimmer corset despite effective cost controls. It all starts with the gross margin, where last year's figure of nearly 20% dwindled to just more than 17%.
That's what it takes to keep a resurgent Hewlett-Packard
I would love to tell Rich that he's wrong and that Dell's brand name alone is worth more than a paltry $44 billion market cap -- but I can't. Consumers have always been fickle, and trying economic times only turn up the volume on their brand-agnostic flutter. Try again when America's economy has stabilized.
Digital image sensor maker OmniVision Technologies
CEO Shaw Hong explained that OmniVision's hand was forced this quarter. The company's customers keep demanding smaller, better, and cheaper VGA sensor chips. As OmniVision moves into emerging markets like China, where low-end chips are the mainstay products, the company must choose between defending its margins or its market share. They chose market share this time, which explains both the high sales and the low profit. It's a tough choice to make, but nothing comes easy when you're fighting multinational giants like Micron
Thanks to a strong balance sheet, OmniVision can afford to take a short-term hit on the bottom line in order to build a foundation for future success. The stock is more than 40% cheaper today than it was a year ago, because the market often fails to appreciate that sort of forward-thinking management. I can't promise that we've seen the bottom yet, but there's a lot of upside to this stock with fairly limited risks at this price. In other words, this could be a brilliant buy-in point.
Over and out
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 ones are stuck in the mud for real.
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Fool contributor Anders Bylund holds no position in the companies discussed this week, but does subscribe to the American version of VimpelCom's fiber. Dell is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor recommendation. The Fool has an ironclad disclosure policy, and you can see Anders' current holdings for yourself.