Friday’s Post-Earnings Movers: Is it Time to Buy Frontline Ltd (FRO) and More?

My problem with this stock is its valuation. The company is growing by just 30%, and in my opinion, this level of growth is not enough to validate a price/sales over 6.0 or a P/E ratio over 200. This is a stock with almost 19% of its float being short, therefore much of the gains are most likely a result of short covering, rather than a total reflection of valuation compared to fundamental performance.

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, it is very alluring to try and purchase a stock after it reports earnings, and is trading with large gains. However, chasing these trends often create loss, as quite often stocks will trade illogically after earnings. A more efficient practice is to read the earnings report first and then make a decision based on the information within the report. 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.

The article Friday’s Post-Earnings Movers: Is it Time to Buy? originally appeared on Fool.com and is written by Brian Nichols.

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