Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of AFC Enterprises (NASDAQ:PLKI) were looking undercooked today, falling as much as 11% after the company posted underwhelming guidance in its quarterly report.
So what: The parent of the Popeye's fast-food restaurant chain actually beat estimates in the previous quarter. Earnings per share came in at $0.38, above expectations of $0.32, and revenue surged 26.7% to $49.3 million, topping the consensus at $46 million. Same-store sales grew robustly at 5.1%, and the company seems to be hitting on all points of its strategic plan, but investors were scared off by weaker-than-expected guidance. AFC actually bumped up the lower end of its full-year earnings-per-share guidance to $1.39 from $1.37, now calling for a range of $1.39-$1.42, but lowered its fourth-quarter same-store sales range to 3.5%-4%. Analysts had been expecting an EPS of $1.44.
Now what: This seems to be a typical Wall Street reaction, overvaluing guidance and ignoring a strong quarter, especially when many companies tend to provide conservative outlooks. Considering shares have nearly doubled this year, though, perhaps it's not surprising to see a pullback. AFC has beat earnings estimates in three of its four last quarters, so don't be surprised to see it do the same in Q4. Long-term, Popeye's has promised to deliver long-term EPS growth of 13%-15%, a level it's having no trouble achieving currently. Shares aren't cheap, but after one or two more drops like this, I'd be willing to take a bite.
Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.