Still Learning

We always seem to have lots of valuable and supportive chatter going on during our regular weekly Q&A webinars.  Tuesday was no different.

Two members asked about stocks that behaved badly around earnings. On Nov. 8th Chorus Aviation, CHR, reported solid third quarter results. Price gained 4.38%. The next day however was a wild one. In the minutes after the open, price had fallen more than 9%. Remarkably, it proceeded to gain it all back within the next 30 minutes. It closed at $9.40, down just 1.36% on the day. It continued to rise the next three days.

So what happened? Blair, who happens to own CHR, commented that a downgrade by one of the bank brokerages contributed to the early tumble, one that may have caused many investors to get stopped out. A debate about whether hard stops are good or bad is for another time.

Today it was Premium Brands. PBH opened down 9.63% in the first minute of trading before recovering somewhat, ending the day down 6.57%. Before the bell, PBH had announced record 3rd Quarter results. Record revenues. Record earnings. All good, right? Not so fast.

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Mike chatted in, “Reuters said reducing guidance.” Other members shared insights they had gleaned by digging deeper into the report. Mark and Robert commented that earnings, as good as they were, actually missed expectations. Neil identified what may have been the biggest problem. “No earnings growth from last period,” he chatted in. A read of the company’s earnings release confirmed it. The CEO was quoted, “While it was a great quarter overall, earnings growth slowed significantly from the first half of the year.” He cited issues such as poor weather and delays in the launch of major sales initiatives.

Could investors have seen it coming? Well, earnings were good, justifying PBH’s high Relative Safety, RS rating, just not as good as expected. However, when we added GRT to PBH’s graph, we could see earnings growth fell to 24% from a high of 29% in March. Sales GRT also slipped. As we further studied the graph, Salim chatted in, “It goes back to what you wrote about LNR in last week’s essay.” Remember, with LRN’s price and RT, Relative Timing, both trending lower before a bad earnings report, I wrote, “It’s almost as though people in the know were expecting bad news.” Salim was right. PBH’s price had fallen six of the previous eight days prior to earnings. RT was trending steadily lower, clearly sensing a change in sentiment to the side of the bears just before earnings.

So what should investors do now? I’m certain a lot of VectorVest subscribers still own PBH. It’s made steady gains and held high VST and RS ratings for more than three years.  VectorVest still rates it a HOLD, so unless it hit your STOP Loss, why not hold? If it turns to a SELL, then you’ll need to evaluate things again.

PBH VectorVest chart

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If you don’t already own PBH, this could be the buying opportunity you’ve been waiting for. PBH was overvalued according to VectorVest, but now price has come down close enough to Value where VectorVest considers it, “Fairly Valued”.  There’s a long shadow under today’s price candle, evidence that buyers have already started stepping in for a perceived bargain.

Back in the webinar, Don, one of our many experienced and knowledgeable investors, seemed to be shouting, “PBH is a BUY!”  I suspect it won’t be long before VectorVest also gives PBH a very loud BUY yet again. We’ll be sure to track it in our upcoming webinars where THERE’S LOTS OF LEARNING AND SUPPORT GOING ON.

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