If you aren't prepared, this is how you could feel by the week's end. Photo: Alex Proimos, via Wikimedia Commons.
Got volatility?
Whether you want it or not, if you own one of the three stocks discussed below, it's headed your way. That's because I've found a way to predict the week's big movers on Wall Street before they make their moves. I do this by looking for stocks that are heavily shorted, and are reporting earnings.
When these two variables combine, volatility is almost always the result. If you don't believe me, just check out the three stocks I highlighted earlier this month, which moved an average of 15% following their respective releases.
But I don't think you should try and make a quick buck based on this information. That's because there's no telling if these stocks are going up or down. Instead, I think current shareholders should read below to figure out what's short-term noise, and what's really worth worrying about.
Deckers (DECK +5.30%)
Though the company owns a number of different footwear brands, none is more important than its line of Uggs boots. Over the short term, here are the numbers that analysts will be focused on.
|
Expected Revenue |
Expected EPS |
|---|---|
|
$487 Million |
$1.07 |
Source: E*Trade.
Investors are shorting the company's stock for two big reasons. First, demand for Uggs has been lighter than is historically normal lately, and that has some believing that the boots may be a fad. I'd be careful to read too much into this, though, as Uggs have been around for a long time. If they are indeed a fad, they are one of the longest-lasting ones in the fashion industry.
Furthermore, the price of sheepskin has crimped margins lately. This is something management doesn't have much control over. Investors should actually be heartened by the fact that CEO Angel Martinez refuses to use cheaper alternatives to make a short-term profit. He knows it would ruin the company's brand.
Over the medium term, expectations for the holiday quarter will be crucial. The company does the lion's share of its business during the winter. Expectations are currently set for $5.28 in EPS on $856 million in sales.
Long-term investors should focus on the success of the company's direct-to-consumer (DTC) line. With better margins than retail locations, this business segment could represent a significant part of Decker's future profitability.
Proto Labs (PRLB +1.77%)
My best guess is that Proto Labs is heavily shorted because it's so closely associated with 3-D printing companies -- which have plummeted during the past year. Unlike those who manufacture these printers, however, Proto Labs simply provides 3-D printing services for customers who don't want to buy the printers themselves.
Over the short term, here's what analysts will be watching
|
Expected Revenue |
Expected EPS |
|---|---|
|
$67 Million |
$0.53 |
Source: E*Trade.
The two things that long-term investors should pay attention to are gross margins, and comments on the company's recent acquisition of Alphaform AG. Margins have continued to contract as the cost of goods sold has risen slowly, but steadily. Investors should hope for some form of stabilization here.
Proto Labs recently agreed to acquire the assets of Alphaform AG. The company, based in Germany, offers Proto Labs the ability to significantly expand its reach. Listen in to the conference call to see how quickly such reach can be realized, and when the acquisition will be accretive.
DeVry (DV 2.34%)
No for-profit educator has escaped the market's wrath during the past five years. After questionable lending and recruiting practices were revealed -- as well as droves of former students who have defaulted on their loans -- the federal government has cracked the whip.
On a relative basis, DeVry has actually done well. But that hasn't stopped it from being in the bullseye of short-sellers. Here's what the market is expecting this week.
|
Expected Revenue |
Expected EPS |
|---|---|
|
$440 Million |
$0.36 |
Source: E*Trade.
If you could only look at one metric to see how the long-term prospects for the school are, it would be new student enrollment. Nothing is more predictive of the future of the company than the number of new students it is able to sign up for classes.
The company breaks out numbers for a variety of different sub-schools within its control. The figure to focus on is new students at "DeVry University." Last quarter, new student enrollment fell 13%. If the bleeding of new students doesn't stop, don't expect the stock to react kindly.
