Jim Cramer, the host of Mad Money, recently delved into the complexities of disappointing quarterly earnings, emphasizing the importance of transparent communication from management. He pointed out that during each earnings season, evaluating companies can vary significantly in difficulty. Cramer remarked that when grading these results, investors seek clarity and simplicity, wanting reports that are easy to understand rather than muddled and confusing.
Last Wednesday, Cramer posed a thought-provoking question, noting that while stocks have the potential to generate substantial profits, the recent earnings reports have made it clear that not all results are straightforward.
“Stocks can make you a lot of money, can’t they? But after another day full of earnings where the Dow fell 92 points, S&P dipped 0.33% and Nasdaq declined 0.56%, it is worth remembering that most of these quarterly report cards aren’t that clean, not that simple.”
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Cramer likened the reporting process to navigating a complicated landscape where quick, headline-driven summaries often fail to capture essential nuances, which can lead to significant misunderstandings and even crises in interpretation.
He explained that many companies faced a series of challenges in their earnings reports, asserting that every disappointing quarter has its unique characteristics, complicating the assessment process. Cramer illustrated this by comparing the situation to a criminal trial, where a defendant who is clearly guilty but refuses a plea deal might face severe consequences. He emphasized that for CEOs, acknowledging mistakes is crucial; failing to address poor results could lead to a perception that they do not take the reporting process seriously.
“Bottom line, memo to CEOs everywhere: each gutter ball, every strike out, must be explained or we’ll be concerned that you simply don’t take the process seriously. If you don’t want to face the music, then you need to give us the happy family of good results and a sunny forecast. When you can’t do that, you at least need to straightforwardly admit that you were wrong.”
Jim Cramer is Talking About These 7 Stocks
Our Methodology
For this article, we compiled a list of 7 stocks that were discussed by Jim Cramer during the episode of Mad Money on October 30. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Jim Cramer is Talking About These 7 Stocks
7. Wingstop Inc. (NASDAQ:WING)
Number of Hedge Fund Holders: 31
Cramer commented that one of his favorites, Wingstop Inc. (NASDAQ:WING) did not report its usual solid quarterly earnings. Here’s what he said about the results and the reaction of the market to them:
“Finally, there are the unhappiest of shortfalls, the ones that management simply refuses to acknowledge, either because they’re in a state of denial or they’re full of it. And that’s what I thought as I read the conference call for Wingstop… one of my favorites. Every quarter they give you an Acme dynamite set of earnings and a rosy forecast, sensational same-store sales. Today though, Wingstop dwelled on the good, not blowout, same-store sales and didn’t even mention the out and out earnings shortfall. 88 cents, looking for 96. Funny thing about Wall Street, the only thing it hates more than a big miss is when management tries to pretend the big miss didn’t happen. Hence why Wingstop plunged 21% today.”
Wingstop (NASDAQ:WING) is a restaurant franchise that operates under the Wingstop brand, specializing in classic and boneless wings, tenders, and chicken sandwiches, all hand-sauced and tossed in a variety of flavors. The company promotes itself as “The Wing Experts” and employs an asset-light franchise model.
As of September 28, the company has established a presence with 2,458 restaurants globally, including 2,120 locations in the United States. Of these, 2,064 are franchised, while 56 are company-owned. Internationally, there are 338 franchised restaurants in various markets.
For the fiscal third quarter, the company reported revenue of $162.5 million, marking a significant increase from $117.1 million the previous year, a growth of 38.8%. The net income for the same period reached $25.7 million, a rise of 31.9% and diluted EPS stood at $0.88. The company’s system-wide sales also saw a considerable boost, rising by 39.4% to $1.2 billion. Despite these impressive figures, rising input costs, particularly related to bone-in chicken wings, led to an increased cost of sales, which reached 77.8%.
On October 31, BMO Capital lowered the price target on Wingstop (NASDAQ:WING) to $335 from $360 and maintained a Market Perform rating. As per the firm, the company’s third-quarter earnings per share fell short of expectations due to slightly weaker comparable store sales, diminished restaurant margins, and increased general and administrative costs.
The firm added that although the current business momentum for the company remains strong and its long-term outlook is positive, concerns about decelerating comparable sales may impact share performance until there is clearer stabilization in the market.
6. Reddit, Inc. (NYSE:RDDT)
Number of Hedge Fund Holders: 39
Cramer commended Reddit, Inc.’s (NYSE:RDDT) third-quarter results and credited the stock gaining to its “profitable quarter”.
“Ideally, we hope for companies like Reddit, our guest last night. Wall Street was expecting it to be a money loser with little growth. Instead, we got a highly profitable quarter with a modest growth. And that’s why the stock’s soared 42%.”
Reddit (NYSE:RDDT) operates a dynamic platform that fosters the creation and engagement of digital communities centered around diverse interests, allowing users to participate in discussions and share various types of content. The company reported its Q3 results on October 29 and the stock has been up over 38% since then, as of November 1.
The company exceeded Wall Street expectations by reporting earnings that showed substantial growth. It achieved revenue of $348 million, which showed a remarkable year-over-year increase of 68%. This performance resulted in a positive earnings per diluted share of $0.16, a significant turnaround from a previous net loss of $0.13. User engagement on Reddit has also seen considerable growth, with active user counts increasing by 51% in the U.S. and 44% in international markets.
Reddit (NYSE:RDDT) management attributed this surge in part to advancements in machine translation, which has led to four times the incremental growth in daily users. The company plans to extend this technology to additional countries, which is expected to further drive user engagement. Additionally, the average revenue per user (ARPU) grew by 14% globally, contributing to a 56% boost in worldwide advertising sales, which remains the primary driver of the company’s growth.
In a notable development, the company’s smaller revenue category, labeled “other revenue,” experienced a dramatic increase of 547%, primarily fueled by the expansion of its artificial intelligence business. This segment includes data licensing partnerships that have become increasingly significant. During the earnings call, COO Jen Wong highlighted that the company licenses its user data to facilitate advertising analytics and to assist in training large language models (LLMs) and other AI systems.