It happens to every company sooner or later: Wall Street sets a mark for quarterly earnings, and the company misses that goal. Sometimes an earnings stumble is a signal to sell, but digging in the dirt is also a good way to find turnaround candidates while they're getting beaten down. Today, flat panels look flatter than ever, our tutor has some reading up to do, and please get that notebook computer off your lap.
Our first disappointment this week comes from AU Optronics
The LCD market is acting like a roller coaster these days. Oversupply begets slowed production and lower prices; lower prices beget great sales; huge sales beget product shortages; shortages crank up the production lines again -- and we're back where we started. AU Optronics is largely at the mercy of end-product makers like Dell
It's the kind of situation that leads to large, unpredictable production swings, and the occasional market overreaction to this news or that. But AU Optronics has a long operating history, generally produces large annual cash flows, and should be in no danger of going out of business or losing its market in the foreseeable future. Buying on these dips and holding on for better times ahead could work out very well indeed.
Pay attention, class!
Moving right along, we're looking at Educate, Inc.
Management blames the shortfall on unexpected difficulties in setting up new learning centers as the company expands. Educate is restructuring its offerings, having just sold off an on-site No Child Left Behind service to private investors to focus on online delivery of such programs, and the entire company may soon go private as management is evaluating an $8 per-share buyout offer from another private consortium.
If that offer is rejected, the share price is sure to plummet and provide a much better buy-in opportunity than what we're looking at today. The negative report did push the price down a bit, but there's still only a 4% opportunity here if the opposite happens and Educate takes the bid. Serious investors should probably look elsewhere today. LeapFrog
Sony feeling Blu
Let's round out this lineup with Japanese electronics giant Sony
You may have heard of the battery recall debacle, where laptop batteries manufactured by Sony and shipped with systems from major brands like Dell, Apple
Based on a 16.7% revenue increase in electronics, that segment's operating income should have more than doubled year over year, but the battery recall cut that victory lap short and took out two-thirds of last year's electronics income. On top of that, the movie studio underperformed with more bombs than hits, financial services lost a little bit of revenue and half of its income, and the gaming segment took a stiff charge because of another delay in PlayStation 3 shipments. Ouch.
Fellow Fool Alyce Lomax doesn't see this ship righting itself in the near future, and I can't say I disagree. Sony hasn't executed well over the past year, pushing the PS3 back time and time again and having trouble convincing Hollywood and consumers alike of the need for high-definition Blu-ray discs. Actual Blu-ray players are few and far between, and they're priced into the stratosphere.
There's even a new industry consortium in place to work out standards for laptop batteries and their manufacture, in order to avoid any more episodes like the one Sony just lived through. The company doesn't exactly have a reputation for sterling customer service or attention to consumer wants and needs, and it's getting harder to compete on the basis of the Sony brand with all these PR mishaps taking the shine off a once-premium name.
In short, there's much work to do here, starting with the PS3 launch. Nail that one and some of the rest will follow, but CEO Howard Stringer and his crew can't afford to take their eyes off the ball for a single moment. If you want to profit from next-generation game consoles, you might do better elsewhere.
Some of these underperformers are victims of larger circumstances, while others might have only themselves to blame. It's up to you to decide which down-on-their-luck companies should be able to pull themselves up by the bootstraps and which really are stuck in the mud. Come back next Monday, and we'll take a look at another batch of mishaps and disappointments. It'll be fun and educational.
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Fool contributor Anders Bylund holds no position in the companies discussed this week, and thinks Sony should go look for Blu's clues. The Fool has a disclosure policy, and you can see his current holdings for yourself.