Earnings can be the best period of opportunity in the market, as they often set the trend for the following three months. However, it can also be a trap. Therefore, I am looking at each of the below companies’ performance to determine if these reactions are creating value or a value trap.
Giving Them the Benefit of the Doubt
Without a doubt, the most talked about performance of the day was from Oracle Corporation (NASDAQ:ORCL) and its near 10% loss. The $150 billion technology company had been trading with great performance throughout most of the year, but weak performance in key sectors created panic that cloud competition might be adding more problems than the company has admitted. The company obviously missed on both the top and bottom line, but software license, cloud subscription, and hardware product sales all missed expectations by a significant margin. Furthermore, the company’s guidance was short of expectations–so needless to say, there is a strong belief that the company is not quite as strong as some believed.
Historically, when Oracle Corporation (NASDAQ:ORCL) misses earnings to this degree, it is always a great buying opportunity. And with Larry Ellison at the helm and a forward P/E ratio of just 10.91, I am definitely buying on this weakness. With that being said, the earnings were bad, yet the company insists that the weakness is not due to macro changes, but rather a lack of execution on behalf of the sales team. Therefore, with years of great performance, I’ll give the company the benefit of the doubt–but if next quarter is bad I’ll start looking for bigger problems.
Great Growth But Still Waiting For Profitability
As the Dow traded lower, KB Home (NYSE:KBH) traded higher to continue its historic year of gains. The stock trended higher by 2.50% after announcing earnings that easily exceeded expectations. The company grew revenue by 59% year-over-year (yoy) and narrowed its losses as margin growth expanded. The company also showed strong performances in deliveries and orders, and prices were raised compared to the year prior.
One of the primary reasons that KB Home (NYSE:KBH)’s earnings were so good is because of the company’s land repositioning efforts, as its customers are seeking larger and more expensive homes. The company continues to grow fast, is fairly valued, and is now breaking even with operating margins and has positive cash flow. The only thing I’d like to see from the company is, of course, profitability. With that being said, the company is moving in the right direction, and although I think stocks such as Bank of America are better plays on the housing market, I also think that the stock could continue to gain.