3 Earning Results that Could Lead to a Long-Term Trend Higher: The Home Depot, Inc. (HD) and More

If you look at the fundamentals alone, then this is a very cheap stock. Herbalife is trading with a forward P/E ratio of just 7.34 and a price/sales of 1.10, which is not consistent with companies that are growing by double digits yoy.

The problem is the speculation/rumors surrounding the company. Is it or isn’t it a pyramid scheme business, and will future regulation significantly damage its reputation and growth? These are unknown questions, making this is a very high risk investment. However, looking at what we know now, this is an undervalued company (based on fundamentals), that presents great long-term upside potential (if all is good with the structure of the business).

Conclusion

In my book, Taking Charge With Value Investing (McGraw-Hill), I examine human behavior and the psychological effects that take place in the minds of investors when a stock shoots higher or falls drastically lower (think roulette at a casino). For many investors, chasing these trends is common, even addicting, and very few are capable of realizing their losses because of their occasional gain. Investors need to avoid this behavior, and not look at the performance and then the news, but rather read the earnings report first and then make a decision based on the information within. By doing so, you will be able to find the inconsistencies and a distinction between performance and fundamentals, which creates value and allows for large returns.

In my opinion, these three companies show very strong fundamental gains, and are quite cheap compared to their individual industries. As a result, because of this value, and strong earnings, it is very possible that we will see trends higher.

The article 3 Earning Results that Could Lead to a Long-Term Trend Higher originally appeared on Fool.com and is written by Brian Nichols.

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