As the markets traded to new all-time highs there were several stocks seeing massive post-earnings pops on Tuesday. In this piece I am looking at these stocks to determine if the move was warranted and if further upside exists.
This Stock Just Keeps Going Higher!
One of the more under-the-radar performances of 2013 has been from Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) and its 173% return, including its 9.17% post-earning pop on Tuesday. For the quarter, Himax posted revenue growth of 5.4% year-over-year (slightly beating the consensus) and an EPS of $0.08 (beating by $0.01). By most accounts, it was a very small beat, but it was guidance that drove performance.
For the upcoming quarter, Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) expects a 17%-20% quarter-over-quarter (Q/Q) increase in revenue, which exceeds the expected 15% improvement. The company also saw strong margin improvement both Q/Q and yoy as small/medium sized panels for the IC design house (with LCD manufacturing capability) increased 26%. Hence all numbers look good for the company, but in my opinion, it is now fairly priced.
The company’s smartphone-related business has grown and is now 52% of revenue, yet it still faces a 16% fall in larger panels. Sure, I like what I see in smartphones, but the company is still highly reliant on the declining LCD business. As a result, I am going to “sell” with the stock trading at a fair value 2.75 times sales and 40 times operating cash flow.
The Quintessential Example of Value
Prior to Tuesday, I had never heard of the $850 million company Interactive Intelligence Group Inc (NASDAQ:ININ), and therefore spent many hours reading transcripts and exploring its website following its quarterly report. Interactive Intelligence Group Inc (NASDAQ:ININ) is a diversified software applications company, one with explosive growth!
For the quarter Interactive Intelligence Group Inc (NASDAQ:ININ) crushed expectations with revenue growth of 39% and an EPS of $0.17 (beating by $0.15). The company saw strong growth throughout all regions including a 31% rise in total orders, 42% rise in cloud-based orders, and a 42% rise in cloud-based revenue. Despite this massive growth, the technology company is still trading with a price/sales of just 3.75 and has operating margins of 0.57% (meaning much room for improvement). In my opinion, this is a cheap buy-and-hold stock that I expect to trade significantly higher post-earnings.
Mercadolibre Inc (NASDAQ:MELI) is an internet-based company that acts as a hosting service for other companies. Since 2011 the stock has been volatile, but on Tuesday it rallied 17.88% after posting earnings that missed on the bottom line and slightly beat on the top line. For the quarter, total sales grew 23% while net profit declined 11% (showing margin declines).
The declines in net profits were related to operating expenses that increased 21%, almost the rate of growth. Furthermore, the company had to manage a currency devaluation in Latin America, thus pushing gross margins to 72.1% from 74.8%. Overall, I don’t really see too much wiggle room for this company. It has operating margins of 34.71% (near maxed judging by this last quarter) and trades at a price/sales of 14.48 with just 20% growth.
When compared to Interactive Intelligence Group’s price/sales ratio of 3.75 and its 40% plus growth you can see that Mercadolibre Inc (NASDAQ:MELI) is by no means presenting value. Personally, I prefer the company with greater growth, improving margins, and the lower valuation, which is by all measures, the quintessential example of value.
In my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I explain how earnings should be used as a platform to assess, locate, and then capitalize on value. I also call earnings season a period where retail investors can easily be trapped, as sometimes a stock will trade illogically.
To many the process of identifying value after earnings can be difficult, but if you want to improve your returns then you can start by simply reading the report and listening to the conference call before even looking at the stock and its performance. Then, you will have a clear understanding of the company’s strength or lack thereof, and can make a wise investment decision.
The article Are These Massive Movers a Buy? originally appeared on Fool.com and is written by Brian Nichols.
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