Assessing Earnings and Upside Potential for Thursday’s Movers: The Men’s Wearhouse, Inc. (MW), Ebix Inc (EBIX)

The Men's Wearhouse, Inc. (NYSE:MW)Knowing how to react when a stock shoots higher after earnings is one of the more common questions I receive as it relates to individual stocks. Sometimes post-earning reactions create opportunity, and other times they do not. In this piece I am looking at three stocks that saw great movement on Thursday, and I am determining if the reaction was worthy of the fundamentals.

Oversold Stock with Low Expectations Creates Gains

Ebix Inc (NASDAQ:EBIX) traded higher by 4.05% on Thursday after the company posted a mixed earnings report. The company posted a slight beat on the bottom line but missed on the top line with revenue growth of 23% year-over-year (yoy). The company’s opex was near even with revenue growth, and the company issued no guidance for upcoming quarters.

The driver for Ebix Inc (NASDAQ:EBIX)’s movement on Thursday was not necessarily the quarter, but rather lowered expectations and a stock that was oversold with a one-year loss of 33%. Overall, I liked what I saw from the company: I liked the 23% revenue growth and I liked that gross margins were 80.7% and that the company bought $3.2 million worth of shares and plans to continue buying in Q1. However, because of the stock’s volatility and the inconsistencies of the company, I’d still like to see one more good quarter before buying the stock.

Possibility of Profitability Creates Optimism for Investors

Shares of Sigma Designs Inc (NASDAQ:SIGM) saw a massive pop of 17.65% after reporting a mixed earnings report. The company missed on the bottom line but beat on the top line, despite a 31% yoy loss in revenue. The company also guided for Q1 revenue towards the low end of the Street’s expectations but did say that it anticipates profitability in this current quarter.

Basically, the market ignored a lot of negatives for the guidance of profitability. However, this is a stock that has seen many years of decline and with it being oversold, the guidance for profitability is a sign that its restructuring and cost-reduction efforts have been effective. As a small cap company with a price/sales ratio of 0.81 I do think this is a stock worth watching, however I do want to see top line growth before considering a long position.

Speculation Pushes Shares Higher, Not Earnings

Much like SIGM, shares of The Men’s Wearhouse, Inc. (NYSE:MW) rose for reasons other than its quarterly performances. The company’s earnings were fairly weak, as it missed on both the top and bottom line, and posted sales growth of just 8.2%. The company saw just 1% growth in its Men’s Wearhouse business, which made up 61% of its total Q4 sales. Therefore, why did it rally almost 20% on Thursday?

Men’s Wearhouse rallied for two reasons: In part due to the approval of a $200 million share repurchase program but mostly because the company hired Jefferies to assist in evaluating alternatives for its K&G operations. The Jefferies news is the big one because it could significantly strengthen the business. Not only could the company sell K&G to improve its balance sheet but it would be eliminating a segment that lost business in Q4. Personally, I do not buy stocks on the prospects of strategic alternatives, however if the company does in fact divest or sell K&G, then MW becomes very attractive.

Conclusion

In my book, Taking Charge With Value Investing (McGraw-Hill), I examine human behavior and the psychological effects that take place in the minds of investors when a stock shoots higher or falls drastically lower (think roulette at a casino), with one scenario being earnings. For many investors, chasing these trends is common, even addicting, and very few are capable of realizing their losses because of their occasional gain.

Investors need to avoid this behavior after earnings, and look not at the performance of the stock but rather the performance of the quarter and the valuation to determine if a position is wise. By doing so, you will be able to save yourself money by not being sucked into a situation that looks too good to be true.

The article Assessing Earnings and Upside Potential for Thursday’s Movers originally appeared on Fool.com and is and is written by Brian Nichol.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!