I wrote this in the middle of a long thread on SKX, but I think it’s important in its own right:
What seems so odd to me is that everyone treats it as a surprise, especially the analysts. The company (Skechers) simply said in advance what they were going to do and then did it! They estimated $0.95 to $1.05, and then came in at $1.10! No big surprise at all. (Granted they beat revenue more handily). You had a company with a PE of 24, a one year earnings gain of 158% and a PEG of 0.16 as I remember. And they were predicting up 80% or so for the next quarter, and that’s what they did. What did people THINK would happen?
Today it’s up about 15% after earnings. It seemed to me very clear that this was a mispriced stock, especially compared to other related stocks like NKE and UA which had low growth rates and high PE’s. I kept pointing this out on the board. I think this happens more often than people think, and we should look for this kind of stock in my opinion. Not for our whole portfolio, because there really aren’t enough of them, but for part of it. I’m talking of the fast growing stocks at low PE’s, not at already inflated prices.
I don’t want to risk ignoring the obviousness about the work you do on this board, Saul. Just top shelf stuff. I have to admit that a while back I was somewhat annoyed by some of your posts (I think WPRT/PSIX discussions). Turns out, you were spot on with that one, and I wasn’t ready to hear it. Glad I found this board.
I don’t want to risk ignoring the obviousness about the work you do on this board, Saul. Just top shelf stuff. I have to admit that a while back I was somewhat annoyed by some of your posts (I think WPRT/PSIX discussions). Turns out, you were spot on with that one, and I wasn’t ready to hear it. Glad I found this board. Thanks, Cosmid
I think that part of the reason that this happens is that when a stock is up 100% in price from a year ago, analysts say they are downgrading it based on valuation, or based on price. Even though earnings may be up 150% from a year ago and the PE is in the low 20’s! They can’t resist anchoring on last year’s price, instead of evaluating the stock and company as they are now. Individual investors do the same thing mentally.
INBK was another in this category: Here’s what I wrote in post 7256 in response to a bear argument by Creelon:
Hi creelon, Here’s how I see it. INBK took a big hit a year and a half ago when refinancing dried up (fairly suddenly), and their earnings plunged (bolded below). Here’s what the quarterly earnings looked like:
2013: xx 38 16 19 2014: 13 22 28 32 2015:
You can see that they’ve been doing a pretty good job of pulling themselves out of a hole since then (13, 22, 28, 32).
Now, a cursory glance will show you that (barring unforeseen catastrophe), their earnings should be up a minimum of 100% for the quarter we just finished, and possibly considerably more. They will also be up at least 75% for the June quarter.
Now, while I’m reluctant to take a big position due to it being a tiny company with severe lack of liquidity, I’d also be very, VERY, reluctant to short a stock like that, with the same severe lack of liquidity, 100% gains in earnings coming, and selling at less than book value.
And here’s another in the same category, where the result is going to look obvious but it hasn’t reported yet: CRTO
Quickly, Revenue ex-TAC (in millions of Euros)
2013: 37 40 47 55 = 444
2014: 63 67 78 96 = 745
2015:
It looks like revenue for the first quarter will be about 110, up 75% from 63. Now Earnings (in Euro cents per share):
2012: xx xx xx -07 = 09
2013: 04 -09 12 13 = 20
2014: 12 09 27 37 = 85
2015
Looking at what the revenues have been doing, I think we can count on earnings of at least 37-40 cents, up at least 200% from 12 cents (and possibly more actually). Looks pretty OBVIOUS to me.
The TTM P/E ending in December 2014, at current cost of 43.54 / 60 cents per share = 72.5
One of your significantly larger PE stocks.
I take it you’re relatively happy with it because it’s an internet company and easily scalable.
Isn’t the upcoming ‘obvious’ earnings report already built into the stock price already?
Btw, just want to show my appreciation to you and to anirban for bringing this stock to my attention. They certainly have rocketed growth this past year.
Hi Billy, to answer some of your questions about CRTO.
The TTM P/E ending in December 2014, at current cost of 43.54 / 60 cents per share = 72.5 One of your significantly larger PE stocks.
In the post that you just responded to, you’ll see that their trailing earnings are 85 euro cents. At today’s exchange rate, that’s 92 cents US. And $43.54/$0.92 gives a PE of 47, which is high, but not high for a company which quadrupled its earnings last year, and a lot better than 72.5.
In a few days, when first quarter is reported, they’ll have trailing earnings of about 1.10 euros, which comes to about $1.195. That will give them a PE of 36. And for this year, if they don’t grow last December’s quarter earnings at all, and keep them at 37 cents all year, they’d have a minimum of 37 x 4 = 1.48 euros, up from 0.85, so they will be up 74% this year, even if they are flat for four quarters!!!
Isn’t the upcoming ‘obvious’ earnings report already built into the stock price already?
It wasn’t built into SKX’s price, or INBK’s.
Btw, just want to show my appreciation to you and to anirban for bringing this stock to my attention. They certainly have rocketed growth this past year.