Can someone explain to me why when a company reports that earnings will be lowerer then expected but they are still making a profit, or positive money per share that the stock price tumbles? I find it hard not to invest in these companies, because they are making money and are real. Any help would be appreciated. Thanks JOHN.
The reason has to do with one of the other companies involved in the asbestos litigation going bankrupt.There is a great fear, not unwarranted, that the companies don't even know who is going to sue them over the next 12-15 years as the latency period for the affects of asbestos has been estimated to be around 40 years. Basically, that's the only reason why Grace's stock price is so low. So, if you know (more than I or anyone else) that Grace can survive the lawsuits intact, it would be a great buy.
This is true, but I think that Mr. Freaky was also noting the history of most stocks dropping drastically (but not quite this bad) when there is an announcement that "Brand-X" is adjusting its projected earnings down by 6%Notably, if "Brand-Y" announces a upward 6% adjustment, the stock does not go up by the same proportions as "Brand-X" goes down.My being a newbie, I cannot explain it myself... Anyone else out there willing to pitch in?John.
I believe that a part of the problem is the already high valuations assigned to many public companies.Analysts all have valuation models, a lot of which are based in one respect or another on a discounted value of future earnings or cash flow or something in between.I'm guessing (since I have no actual knowledge, but just a theory..) When a company does not live up to the current numbers plugged into their models, the new lower numbers don't only affect this year's estimated numbers, but every year into the future. Therefore there is almost an exponential affect on the discounted current value for that company. So a decrease in earnings of 6% this year, could lead to a decrease in present valuation of 14% or 15% (or larger).Why there is no corresponding affect when there is an increase in earnings over the estimates could (if my theory is correct) result from the analysts NOT making any changes (or few changes) in future projections just because this quarter earnings were 6% higher than expected. Therefore, the current valuation would not change as much.Anyway, that's just one plausible theory. Though the more I think of it, the more I like it. It's simple enough to work. But, if anyone knows the reality, please let me know.
Check the charts and compare volume+ and short interestover the last month. There may have been three factors at play;1) The traditional October sale of losing stocks.2) Insiders or others privy to inside information.3) The catalyst; Owens CorningI think it is a short term effect. I picked up another10K in cheap stock.GRA can weather this as it has managed thus far.
The problem is there is still the over-hanging Asbestos litigation threat and liability. Do you have any idea what the possible and actual costs will amount to to Grace?If you do, please let me know. Cause this isn't tobacco litigation, the asbestos manufacturers are liable for the damage caused by their product.
Earnings beat the street by a penny per share. That is wonderful news. As for the asbestos issue, Grace has somwthing in the neighborhood of $900 million set aside to deal with those unfortunate issues. I can believe the punding this stock has taken for the amount of growth and revenue it generates. Looks like the new world is forgetting about the true value stock in terms of 300% growth in a session. But when the dust clears, Grace and many of its value counterparts will be the ones laughing all the way to the bank.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimate