Earnings Lessons Amidst a Macro-Driven Market
Research Director, Mad Money
That said, the company has historically been conservative when it comes to guidance and its domestic growth opportunity remains substantial — along with pricing power and innovation drivers. We know from the quarter of an under-the-radar name, Ulta Salon — which surged 8 percent after its report on Monday — that there is a bull market for well-positioned domestic growth stories. Look no further than Dunkin' Brands, Whole Foods, Dollar General, Buffalo Wild Wings and Chipotle. Of course, this growth group tends to trade as a unit, so it is important to be cautious especially when expectations get high.
With Lululemon, it is prudent to lock in gains after a run into earnings, but this name remains well positioned long-term and is attractive on pull backs.
Titan Machinery (TITN)
Titan Machinery , which is a play on agricultural and construction machinery, reported what was a decent number last Thursday before the open. You would never know, though, considering the stock fell 22 percent after it reported a very slight miss. Here is a quintessential example of high expectations into a quarter.
When Titan Machinery reported its fourth quarter on April 11, its stock rose a staggering 17 percent — and the name has a history of beating consensus by wide margins.
Lesson: Beware of stocks headed into earnings with a lot of momentum into a quarterly report — they present risk even if trends are strong.
Scotts Miracle-Gro (SMG)
Scotts Miracle-Gro came out with what was a surprising downward division of 2012 this Tuesday evening, causing the stock to drop over 15 percent pre-market on Wednesday before recovering some its losses.
This reaction is one of the reasons that when companies report misses — as SMG did back in its May quarterly report — it is prudent to put the name in the penalty box until we see more traction of a turn. Wednesday’s downside guidance — which was accompanied by a pleading video on the company’s website by CEO Jim Hagedorn reflected continued signs of weak demand with no catalysts in sight.
Ultimately, the company’s defense of last quarter was misplaced and thus, I believe, not credible. Penalty box.