When stocks fall fast and far, they sometimes set themselves up for remarkable rebounds. The following equities suffered dramatic drops over the past week. With help from the 170,000 members of Motley Fool CAPS, we'll see whether any of them have the potential to bounce back:
How Far From 52-Week High?
|Great Panther Silver ||(28%)||$3.62||***|
|F5 Networks ||(30%)||$101.36||***|
|MIPS Technologies ||(54%)||$8.32||***|
Companies are selected by screening on finviz.com for abrupt 5% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com. CAPS ratings from Motley Fool CAPS.
Five super falls -- one superball
There are no two ways about it. If you owned any of the five stocks named above last week, you're significantly poorer for it today. So what went wrong?
Let's see. F5's decline seems a simple function of gravity reasserting itself after a strong surge last week. At Great Panther, there appears to have been a hiccup in silver prices that briefly knocked the wind out of the stock (before it resumed its inexorable climb).
But in most cases, the primary factor behind stock weakness last week appears to have been "earnings." On Wednesday, MIPS Tech failed to deliver on its promise to steal market share from ARM Holdings
Of the five, I'm probably more inclined to invest in the company that underpromises on future quarters, while overdelivering on current earnings. And I'm not the only one.
The bull case for Teradyne
CAPS member tuscanstar has been bullish on Teradyne since the summer of 2009, when the company won a contract to provide equipment for chip maker Qualcomm
CAPS member EnigmaDude says the "stock is being punished for a weak Q2 outlook after reporting good Q1 results." According to CAPS member ksiren, this just gives us a chance to repeat tuscanstar's feat, because once again Teradyne is showing "great growth" and selling for a "low valuation" with "a solid balance sheet."
I agree. At its current market cap, Teradyne shares fetch a shockingly cheap P/E ratio of just 7. They're even cheaper when valued on the company's $480 million in trailing free cash flow. The P/FCF ratio on this stock is a mere 6.2, while the company's solid balance sheet, loaded with $650 million in net cash, gives Teradyne an enterprise value-to-free cash flow ratio of less than 5. At the risk of overstating the case, investors are practically giving the stock away.
Time to chime in
Granted, Teradyne's earnings warning last week puts in question the 16% long-term growth estimate that analysts have assigned the company. But that's OK with me. The way I look at this, at today's prices Teradyne would be a bargain at half that growth rate.
Of course, that's just my opinion. What's yours?