Earnings and earning-related news is the number one catalyst for stock movement. A strong quarter can dictate the direction of a stock for the following three months as can a bad quarter; in the past I have written in detail about such subjects, a domino effect following a strong or bad quarter. In this piece I am looking at four stocks that moved considerably higher after reporting earnings on Thursday, and I am determining if any can continue to trade higher.
After a painful year, shares of Responsys Inc (NASDAQ:MKTG) traded higher on Thursday after announcing earnings that easily exceeded expectations. The company grew by 20% year-over-year (yoy) and also issued guidance that was far better than the consensus. Overall, it was beat across the board, and after a year filled with loss it looks as though the company is finally seeing some momentum.
The online marketing company is a perfect example of a stock that could reverse the trend with one good quarter. The stock has gone through a very common phase: It was overvalued, then it corrected, and now fundamentals are outperforming the valuation. The company trades with a price/sales of just 2.0 and a forward P/E ratio of 28.81; both are very cheap for a company in this space, therefore I’d buy even after such large gains.
Loyalty Program Drives Gains
If you are a technical trader then perhaps you liked the “cup-and-handle” pattern of Safeway Inc. (NYSE:SWY), but if you’re a fundamental investor then you’re probably satisfied with the company’s earnings. Therefore, it’s a win-win for all involved. The stock is currently trading higher by 11% after meeting revenue expectations and blowing past bottom line expectations.
What’s really good about a potential investment in Safeway is that margins are still incredibly thin. To many this would be a negative, yet it provides room to grow. In the last 12 months the company’s profit margin has remained close to 1.20%, and there are many who believe the company could improve to margins of 2% at some point in the future.
Overall the company looks good — it saw a 2% rise in same-store sales and its loyalty program continues to be a major provider of growth. The company pays a great dividend and would probably make a good long-term investment.
Restaurant Stock Continues to March Higher
Jack in the Box Inc. (NASDAQ:JACK) has increased in value by 35% over the last year, and rose another 5% on Thursday. The company announced earnings that slightly beat on the top line but blew past expectations on the bottom line. The company has continued to cut its costs without sacrificing same-store sales, yet many are now wandering how much lower the company can cut costs?
Jack in the Box has reported revenue of $1.5 billion over the last 12 months, which is a $1 billion loss over the last five years. The company’s Qdoba chain has fared nicely compared to competitors Taco Bell and Chipotle Mexican Grill, Inc. (NYSE:CMG). However, its business plan of closing stores and cutting costs to beat bottom line expectations does not appear to be a long-term plan for success. In my opinion, this is not a stock I’d like to own, and believe that Thursday’s gains should be used as an opportunity to sell.
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.
The article Thursday’s Post-Earnings Movers: Is it Time to Buy? originally appeared on Fool.com and is written by Brian Nichols.
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