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.
Every earnings season has its fair share of surprises and stocks that make huge moves, but rarely can we predict who those movers are going to be before it actually happens.
But by focusing on companies that are about to file earnings reports -- and that have a large number of investors shorting their stocks -- we can do just that. The three stocks I identified last week as poised for huge swings moved an average of 12% following earnings.
Of course, as long-term, buy-to-hold investors, we Fools aren't fans of trying to time the market. Instead, this article serves as a heads-up for shareholders in these companies. Big moves might be ahead, and before making an emotional decision to buy or sell based on large swings, investors need to reassess their original theses for buying shares in the first place.
This week, here are the three stocks to look out for:
|
Company |
% of Shares Short |
When |
Expected Revenue (millions) |
Expected EPS |
|---|---|---|---|---|
|
Corinthian Colleges (NASDAQ: COCO) |
25% |
Wednesday |
$373 |
$0.02 |
|
Pandora (P +0.00%) |
11% |
Thursday |
$198 |
$0.07 |
|
Outerwall (OUTR +0.00%) |
31% |
Friday |
$595 |
$1.22 |
Source: finviz.com, E*Trade.
Corinthian Colleges
Back in 2011, I warned investors that for-profit educators were shady investments, based largely on questionable recruiting practices and ballooning student loan default rates. Among the industry players, I found Corinthian Colleges to be worst of the worst. Since then, the stock has fallen 65%.
Though the company actually expects to show growth in total enrollment during the current school year, lawmakers have recently clamped down once again on what they see as predatory and misleading recruitment tactics. Corinthian recently acknowledged that it, along with three other industry players, had been contacted by a network of 12 state attorneys general probing violations in such areas. While enrollment numbers will be important to determining how the stock fares on Wednesday, investors should listen closely to any details regarding these probes.
Pandora
Everyone's favorite Internet-based radio station has enjoyed quite the year. Since the beginning of 2013, shares of Pandora are up 300%. Where once the company sported an unprofitable business model -- paying more in royalties than it took in from advertising and subscription dollars -- many now see a permanent force on the music scene.
Much of the turnaround can be credited to the fact that Pandora has been able to show that it can win over customers in the face of increased competition. Combine that with a focus on local advertising -- and the fact that advertisers know exactly how many people hear their ads, which isn't true with AM/FM radio -- and you can see why investors are excited.
But the company is still unprofitable over the past four quarters and trades for 100 times earnings. It's not hard to see why bears believe the stock will go down in the near future.
Outerwall
Finally, we have Outerwall. If that name doesn't sound familiar, it's because the company used to be known as Coinstar. The most recognizable division of the business is its chain of Redbox machines spread out in convenience and grocery stores across America.
The company's stock fell precipitously in September, when it announced that sales from DVD rentals came in lower than expected, thanks in part to a promotional scheme that backfired. Shortly after, activist investors initiated large interests in the company's stock, hoping to unlock value from its high free-cash-flow levels.
While the performance of Redbox is certainly important, investors should listen in for any strategic changes on the horizon by way of these activist investors.
