No one knows a company better than those who run it. That's why investors will often watch for when insiders are buying company stock or whether companies are buying back their own shares. These can be bullish signs for a company.
Offering earnings guidance above analyst expectations is also a bullish sign, as over time earnings growth follows sales growth. When a company predicts greater sales profits, we expect its stock price to soon follow.
Sometimes, though, things don't work out as planned, so we'll pair up the increased outlook with the sentiments of more than 180,000 members of Motley Fool CAPS. If the best and brightest stock pickers think a company's long-term potential is outstanding, coupled with the company's own improved sentiment, maybe then investors should take notice, too.
Here are two stocks that recently raised revenue guidance.
CAPS Rating (out of 5)
Prior or Consensus Estimate
Alaska Communications Systems
||***||$343 million||$355 million to $365 million||FY 2012|
||**||$280 million||$289 million||FY 2012|
Source: Company releases. Estimates are for revenue.
Don't blindly buy into their heady outlook -- you still need to do some research. Use the announcement as a jumping-off point for additional research.
Regional telecom Alaska Communications Systems came in from the cold with a fourth-quarter earnings report that was better than expected. Considering investors got frostbite from its decision last quarter to cut its dividend by 75%, the respite from the chilly news was welcome indeed.
The fourth quarter was one of mild improvements. Revenues rose 3%, wireless connections were up for the third straight quarter, average revenue per connection, or ARPU, was up 1.4%, and churn was down. Offsetting those developments, Internet connections declined (though ARPU was up) and retail access lines dropped with a concurrent decline in ARPU.
Investors were warned about the potential for the dividend to blow up last quarter when my Foolish colleague Andrew Tonner highlighted the risk in December as an example of an unsustainable dividend. You can't maintain a dividend payout for very long when what's going out is greater than what's coming in, in terms of free cash flow.
Some 87% of the CAPS members rating the regional carrier think it can still beat the market, but tell us on the Alaska Communications Systems CAPS page if you think it will still get a frosty reception. Then add the stock to your watchlist to see if Verizon dials it up for a merger.
On the razor's edge
I've endured the slings and arrows of outrageous fortune by maintaining an underperform rating on CAPS for SodaStream International, the "make it at home" soda distributor. I've contended it's no Green Mountain Coffee Roasters
Where Green Mountain has patents protecting it (for a little while longer, anyway), SodaStream is afforded no such moat. Users can avail themselves of third-party carbonation canisters and flavors, too. Consumers are willing to pay up for a cup of premium coffee and are getting a slight discount brewing their own K-Cup; again, not so with SodaStream. It's not exactly a premium soda drink you're making at home, and a can of soda is already pretty cheap.
While SodaStream raised its revenue guidance, growth rates are slowing, and that has investors worried. Revenues were up 39% in 2011, but are seen falling to 28% growth this year. That's why its shares fizzled on the earnings news and just one of the reasons I'll be keeping my underperform rating on CAPS.
Highly rated All-Star member latimerburned disagrees, believing it's successfully implementing the Green Mountain strategy and the discounted shares are a buying opportunity: "Similar business model to GMCR though they are much younger in their growth cycle. At 50% of their 52 week high I think they can outperform from here."
Add the pop master to the Fool's free portfolio tracker and let your arrows fly in the comments section below for my belief that SodaStream is nothing more than a fad.
Raise your sights
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters and SodaStream International, as well as creating a lurking gator position in Green Mountain Coffee Roasters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.