Earnings and earning-related news is the number one catalyst for stock movement. A strong quarter can dictate the direction of a stock for the following three months as can a bad quarter; in the past I have written in detail about such subjects, a domino effect following a strong or bad quarter. In this piece I am looking at three stocks that might see a long-term trend as a result of earnings.
Lumber Liquidators Holdings Inc (NYSE:LL) rallied higher by more than 3% after reporting earnings that easily exceeded expectations. The company grew its revenue by more than 20% year-over-year to $210.7 million, beating the consensus by almost $13 million. Its EPS of $0.50 was $0.07 better than expectations, which represents net income growth of 63.2% yoy. The company also improved gross margins and gave guidance that suggests yet another great year in 2013.
There are some who believe that LL is too expensive. The stock trades with a P/E ratio of 43.53, which is far more than competitor The Home Depot, Inc. (NYSE:HD) . Yet one thing to remember is that although LL is twice as expensive as The Home Depot (P/E ratio 23.78), Lumber Liquidators is growing sales by 20% and income by over 60%.
On the other hand, The Home Depot’s margins are near maxed, and it’s growing revenue by less than 5% yoy. Therefore, with Lumber Liquidators growing four times faster, it’s fair to suggest that it deserves double the valuation, and that it could continue to trade considerably higher.
The Medicines Company (NASDAQ:MDCO) has performed well over the last three months, and then saw another 5% boost on Wednesday after reporting earnings. The company easily surpassed expectations with revenue growth of 20.6%, and beat bottom line consensus by $0.27 with an EPS of $0.78.
The stock reached new 52-week highs on Wednesday and now is trading with a P/E ratio of 36.25 and a price/sales of 3.10, making it a fair value stock in the biotechnology space. Currently, investors had been looking forward to the approval of cangrelor, a product that produced positive results in a Phase 3 trial early last month.
In the quarter, international sales of Angiomax/Angiox grew nearly 80%, and for this reason, combined with new product launches, it is very likely that The Medicines Company will continue to trend higher.
Herbalife Ltd. (NYSE:HLF) is a very dangerous short-term trade at this very moment. The company continues to be at the center of controversy, and despite a very strong earnings report, the stock has traded lower by more than 4% on Wednesday. The company beat on both the top and bottom line expectations, and raised its guidance for 2013. The company is now expecting sales growth in the range of 12%-14% in 2013, which is far above GDP.