Three Post-Earning Reactions Presenting Value: Avon Products, Inc. (AVP) and More

My problem with the move higher is that there was nothing particularly good within the report, and that the company did not mention the 787. As an investor, I would be very cautious of chasing gains with this stock, as the situation with Boeing remains volatile. Over the last month there have been whispers that Boeing’s issues are more than just battery-related, and if more problems continue then the company could begin to point the finger at its suppliers. Therefore, with all things considered, I am not sure how the stock could be a “buy” at this point in time.

Stock Rockets on Somewhat Bad Earnings

Avon Products, Inc. (NYSE:AVP) posted a wider than expected quarterly loss, saw sluggish growth trends with total units higher by just 2%, and it continues to have high exposure to Venezuela. So with these problems in mind, how did the market respond to such weak points? The stock rose by more than 20%!

Investors looked past what were obvious weaknesses because of company write-downs and a “business plan” that is geared toward saving on costs. To the company’s credit, I must say that Brazil and Russia were bright spots, but still there were way too many negatives for such a great reaction. Let’s not forget, almost always, cost reductions mean slower growth as companies focus on margins. In a very competitive market I am not sure how cost cutting will serve the company. I view this action as a huge risk and a reaction that was unwarranted.

Conclusion

Too often we associate stock performance with fundamental performance, yet it’s the inconsistencies between these two factors that create value. The ability to identify these inconsistencies is a psychological behavior-changing skill that very few investors are able to perfect. In the past, I have talked about this subject in great detail, and have taught investors how to change these tendencies to return large gains. My advice is to become a smart investor, by learning how to logically assess what caused a stock to move compared to its valuation, or by learning how to first read a quarterly report before admiring the stock’s reaction. Then, if there is a distinction in value you are able to capitalize on the value.

The article Three Post-Earning Reactions Presenting Value originally appeared on Fool.com and is written by Brian Nichols.

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