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I don't know what the analyst was expecting. When the price was $20 and the pe was 13, the stock was a buy. When it dropped to $11 it was downgraded to "market outperform" (the moral equivalent of "hold"). But in the same breath the analyst said that JAKK should still be a $1 billion company in 5 years, which would make it $55 in the future and a tremendous buy right now.

If the analyst had said "whoa- you know those 3Q numbers from JAKK look so horrible I don't think they will be a $1 billion company in 5 years. In fact, I think in 5 years the company will be out of business and anyone who buys the stock now is a sucker" then that would be quite different.

A company failing to meet analyst expectations is like a football team failing to cover the point spread. The team could win by 20 but if the Vegas line was 21, then they're "losers" as far as the bookies are concerned.

As for the manipulation of numbers that might have been only available through "selective disclosure", that's a real concern. And it should be the analyst's job to warn us if there's any monkey business going on- not to say that the company will still be $1 billion in 5 years.

The numbers that are much more difficult to manipulate though are the sales numbers. If JAKK's sales didn't drop dramatically then its price to sales is a pitiful 0.7 compared with over 3 for the industry, 8.5 for the s&p 500 and over 100 for some unprofitable tech stocks that will remain nameless.

Other numbers (such as ROE) are more easily manipulated through debt, which JAKK doesn't have. The only concern I really have is that they have had a nasty habit in the past of issuing more stock rather than borrowing money. But since they are currently involved in a stock buyback that seems rather unlikely.

My own theory is that so many people in the market are technical analysis happy and relying upon computers to make their investment decisions that some technical trigger (like a gap in the opening price) that used to send a stock down a few points will now send it down 20, 30 or even 50%. The other technicians will see this as a "trend" and the whole stock gets pummelled for no real reason whatsoever.

But the whole point of technical analysis is that the sqiggles on the chart are moving for some deep, dark mysterious reason that nobody but the insiders can understand. So when a stock dumps 50% in a day (such as AAPL) there then follows "fundamental" explanations for the event. Analysts will start to downgrade and explain how they are "concerned" about this margin or that ratio or the weakening Eurodollar. The perfectly sensible reason "we're all a bunch of stupid lemmings" never seems to make it past their lips.
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