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. However, sometimes the market gets it wrong, and stocks trend incorrectly. Therefore, I am looking at two companies who reported earnings that traded the wrong way.
Cheap Stock with Incredible Growth Trades Lower After Earnings
In my opinion, SodaStream International Ltd (NASDAQ:SODA) posted the best quarter of the day. There were a lot of questions surrounding the quarter, such as whether or not sales would continue to grow in the Americas and if consumers would continue to buy its products. Well, the company answered a lot of these questions, growing by 55.2% and easily exceeded expectations on both the top and bottom lines.
The company’s Starter Kits were up by 62% and consumables rose 54%, and most importantly guidance remains strong. The company’s conference call was very informative, saying the Super Bowl ad impacted sales and could have a lost lasting effect. Furthermore, the company discussed a transition from high-end machines to mass market products, which has been whispered for the last year.
Overall, this was a flawless quarter, yet the stock is currently trading lower by more than 6%. So why did it fall? Who knows — the stock has 55% of its float being short. This is a ridiculously cheap stock, and while most companies with 50% growth are rewarded with P/E ratios over 50, SODA is about half! Therefore, I’d ignore the performance and use the pullback as an opportunity, because this company isn’t going anywhere for a long time.
Expensive Stock with Moderate Growth Shoots Higher
It seem like everyone is praising the quarter of SINA Corp (NASDAQ:SINA). The company beat on both the top and bottom line, showed growth in gross margins, and posted 181% growth in Weibo VAS. However, the quarter should not have created gains of 9% on Wednesday. This is a stock trading with a P/E ratio of 100 (four times more than SODA), with a price/sales of 6.79, yet only grew revenue by 4%.
When you consider that the company only posted sales of $134.4 million you realize that this is a very expensive stock with little fundamental growth. The company saw just 7% growth in its online ad sales segment, which accounts for 80% of its business. Granted the company does have 500 million plus accounts on Weibo, and it’s a business that could grow rapidly. But the valuation is still too high to validate such a mediocre quarter.