The Decline of Nordson

Wall Street can be a cold place. As soon as a stock falls out of favor, it’s all but left for dead.

Just look at Nordson. The company reported a quarter last Friday that was below expectations, guided down for next quarter and now the stock’s down $19, to $52.67. Cramer thinks it has a lot further to go.

What happened? Nordson had always been the go-to stock for momentum and growth buyers, but when it missed its earnings projection by 5 cents all that changed. The forecast for the following quarter – 16% lower than Wall Street expected – only made things worse. Maybe you think this miss doesn’t require such a severe reaction by the market, but the industries that Nordson is exposed to play a big part here: housing and autos, sport utility vehicles in particular. Even the advanced technology division, supposed to be a big earnings driver, came in lower than expected.

Cramer also pointed out that Nordson raised its guidance significantly the quarter before this. So lowering guidance this time around just destroyed management’s credibility and removed the main reason – growth – that investor wanted this stock in the first place.

Nordson’s downward trend will continue, Cramer said, because it takes a long time – as much as 18 months – for a shareholder base to change. So it will be some time before all the momentum buyers are out and they’re replaced by value investors.

Nordson trades at 14 times forward earnings, down from 17 last week. If you give the company a traditional cyclical valuation, one even a great company like Caterpillar would get, you’re looking at 11 times forward earnings. That brings Nordson down to $40.59 a share, $12 below the current price. And Cramer doesn’t think the stock will stop falling until it gets there.

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