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?
(out of 5)
|Silicon Image ||(33%)||$6.83||****|
|MedcoHealth Solutions ||(12%)||$57.79||****|
|DreamWorks Animation ||(38%)||$23.24||****|
Companies are selected by screening on finviz.com for abrupt 10% or greater price drops over the past week. 52-week high and recent price data provided by finviz.com.
Five super falls -- one superball
There's 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?
Beginning at the bottom, DreamWorks gave investors nightmares when a weak opening for Kung Fu Panda 2 sparked downgrades at Caris & Co. and William Blair. Meanwhile, MedcoHealth lost a key $3 billion government benefits contract to rival CVS Caremark
But which of these opportunities shall we profile today? Decisions, decisions. Well, I've already written about Silicon Image, and why I think it's going to do just fine. I've also told you about DreamWorks, why it's underperformed in the past, and why I think it has the potential to turn itself around going forward. MedcoHealth? Interdigital? Check and check.
But I've not yet had an opportunity to take a close look at EnerNOC. That's why this week, we'll be exploring ...
The bull case for EnerNOC
EnerNOC is giving a whole new meaning to the phrase "knowledge is power." Its basic idea is that by informing power consumers of how much they're paying, they will use it more efficiently, saving money and helping power producers operate more efficiently as well.
A lot of smart Fools think there's a future in this business. Indeed, All-Star investor noryakerson thinks the stock has "the makings of a multi-multi bagger. It's fairly boring, but it provides a technology that will be critical in our energy-hungry society." CAPS All-Star fdude71 agrees that "SmartGrid Management ... will show tremendous growth in the near future and ENOC seems to be well positioned to make us money in the field."
And they're not alone. As CAPS member cdubey relates, 12% of EnerNOC's shares are owned by insiders. (Actually, the number rises to 22% if you count owners of 5% or more of the shares as "insiders.") So it seems the folks who know the company best are also committed to its success. What's more, "Insiders are also buying shares" as the stock price drops. Should you join them?
At first glance, it seems a dicey proposition. With just $4.5 million in GAAP profits reported over the last 12 months, EnerNOC shares sell for a pricey P/E ratio of 95 today. When you see that larger, more diversified power efficiency specialist Itron
But before you jump to that conclusion, take a closer look at EnerNOC's cash flow statement. Yes, GAAP earnings are weak. But at the same time, actual free cash flow at this business is going quite strong. EnerNOC generated $19 million in free cash flow over the last 12 months. With a market cap of $417 million, this means the stock is selling for only 22 times FCF today -- not bad in light of analysts' expected 25% long-term growth rate. What's more, if you back out EnerNOC's considerable cash stash, the enterprise value-to-free cash flow on this business drops to less than 17 times.
Time to chime in
To me this looks like a more than adequate margin of safety on the stock. It's cheap enough that I'm inclined to recommend EnerNOC as a bona fide "bounce" candidate.
Of course, that's just my opinion. What do you think? Tell us on Motley Fool CAPS.
Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 507 out of more than 170,000 members. The Fool has a disclosure policy.
The Motley Fool owns shares of MedcoHealth Solutions and EnerNOC. Motley Fool newsletter services have recommended buying shares of DreamWorks Animation SKG, InterDigital, MedcoHealth Solutions, and EnerNOC. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.