Stocks That Just Lowered the Boom
Mar 29th 2012 10:12AM
Updated Mar 29th 2012 1:58PM
When a company forecasts lower sales or profits, its stock usually takes a hit. It's not always easy to tell whether your company is having a fire sale or burning down. Maybe it is time to get out -- or maybe it's time to buy more!
To help tell the difference, we pair up dour guidance news with the sentiments of our Motley Fool CAPS community of more than 180,000 investors. If the best stock pickers think the companies still have the power to turn lemons into lemonade, maybe investors should take notice.
Here are two stocks that have recently announced reduced guidance.
|Pacific Sunwear (NAS: PSUN)||**||($0.23)||($0.34) to ($0.26)||Q1 12|
|Teavana (NYS: TEA)||*||$0.12||$0.09 to $0.10||Q1 12|
Don't blindly sell into their bearish outlook; you still need to do some research. Use the announcements as a starting point for additional research.
Dude, where's the growth?
It's tempting to blame high teenage unemployment rates on the failure of Pacific Sunwear to execute on its business plan. After all, one out of five teens has been unable to find a job since 2008 (and 25% are unemployed today), and PacSun's shares have fallen from around $10 a share back then to near penny-stock levels today. But that would ignore the results of other teen-oriented retailers who, though swooning with the rest of the market when the financial crisis struck, have managed to return from the abyss.
Aeropostale, American Eagle Outfitters, and even Abercrombie & Fitch trade well above their lows, while Zumiez, which targets the same skate-and-surf demographic as PacSun, has more than doubled from its nadir.
There's no doubt teen fashion sense is fickle, but ever since PacSun's failed efforts to cater to the hip-hop crowd sent the company careening lower, not even the surfers and skaters want to give it the time of day. Now it increasingly looks like a concept ripe for a takeover.
CAPS member sabrefan0201 hoped a new, leaner look would improve PacSun's results, and while adjusted earnings did beat expectations, the outlook was obviously more dour. Without a buyout offer, I don't see this teen retailer getting any gainful employment anytime soon, but tell me in the comments section below or on the Pacific Sunwear CAPS page if you think it can catch the next wave higher.
No tea party here
The idea of creating a premium tea-drinking experience the way Starbucks (NAS: SBUX) created one for coffee shops should be within the realm of possibility for tea specialist Teavana, considering U.S. tea sales are expected to hit $15 billion this year.
The market watchers at Packaged Facts say there are 173.5 million tea drinkers (compared to 183 million coffee slurpers) with Starbucks, Dunkin' Brands, Green Mountain Coffee Roasters (NAS: GMCR) , and McDonald's each generating coffee and tea revenues north of $1 billion.
Coffee is still the dominant hot beverage, with Americans consuming some 400 million cups per day, or 146 billion cups every year. That works out to about 9 billion gallons. Tea drinkers, on the other hand, consume only 65 billion servings annually, or 3 billion gallons, with iced tea comprising the vast bulk of consumption.
Teavana is hoping to boost sales by increasing its footprint globally, but part of the problem is that costs of store openings will eat away at margins, which is one major reason guidance is coming in below expectations. It will also play out across the second and third quarters. Yet with comparable-store sales up almost 9%, the potential to succeed at the game looms large.
CAPS member chopchop0 says Teavana is not the next Starbucks, and with more than half of the All-Stars who have weighed in on the tea partier believing it won't outperform the broad indexes, it explains the low one-star rating it's been assigned. Let us know on the Teavana CAPS page if you'd steep your portfolio in its stock and add it to the Fool's free portfolio tracker to see how things work out.
Looking under rocks
These stocks may have lowered expectations, but The Motley Fool has identified one company with a bright future. Our chief investment officer has even named it The Motley Fool's Top Stock for 2012. The emerging-market retailer is still flying under Wall Street's radar, and I wouldn't bet against our CIO's track record. You can learn more by clicking here. Enjoy, and Fool On!
At the time this article was published Fool contributor Rich Duprey owns shares of Aeropostale, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Starbucks and Aeropostale. Motley Fool newsletter services have recommended buying shares of Starbucks, Zumiez, Green Mountain Coffee Roasters, and McDonald's; creating a lurking gator position in Green Mountain Coffee Roasters; and writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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