Assessing Earnings and Upside Potential for Thursday’s Movers: The Men’s Wearhouse, Inc. (MW), Ebix Inc (EBIX)

Men’s Wearhouse rallied for two reasons: In part due to the approval of a $200 million share repurchase program but mostly because the company hired Jefferies to assist in evaluating alternatives for its K&G operations. The Jefferies news is the big one because it could significantly strengthen the business. Not only could the company sell K&G to improve its balance sheet but it would be eliminating a segment that lost business in Q4. Personally, I do not buy stocks on the prospects of strategic alternatives, however if the company does in fact divest or sell K&G, then MW becomes very attractive.

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), with one scenario being earnings. 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 after earnings, and look not at the performance of the stock but rather the performance of the quarter and the valuation to determine if a position is wise. By doing so, you will be able to save yourself money by not being sucked into a situation that looks too good to be true.

The article Assessing Earnings and Upside Potential for Thursday’s Movers originally appeared on Fool.com and is and is written by Brian Nichol.

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