How This Tech Stock Jumped and Slumped
Jan 28th 2013 8:05PM
Updated Jan 28th 2013 10:00PM
Shares of Nam Tai Electronics jumped as much as 23% in pre-market actiontoday. But the bounce didn't last long. The stock started plunging as soon as the opening bell rang, and Nam Tai now trades 4% below Friday's closing price.
How can the same stock soar so high and then sink so low, all on the same batch of news?
If the classic beat-and-raise move always propels stocks higher, Nam Tai chose the equally proven opposite path. The electronics manufacturer blew the roof off the just-reported fourth quarter. Sales jumped 263% year over year to $468 million and gross profit margins expanded from 1% to 10.5%. The bottom-line impact of these twin improvements turned last year's $0.13 of net losses per share into a $0.80 profit per share.
The lightly followed stock didn't have to measure up to analyst expectations. I couldn't drum up a single earnings estimate among three trusted sources.
Maybe that's why the stock shot skyward on the earnings release, before management's forward guidance had a chance to sink in.
Nam Tai's own management doesn't expect the gains from 2012 to last very long. The company has doubled down on making LCD screens for smartphones, tablets, and displays for automobile dashboards. Even Apple brought the company aboard its gravy train last year to supply display modules for the iPad Mini. Thanks to Apple's huge unit volumes, that's the kind of news that can move mountains -- and small-cap stocks. Nam Tai shares have more than doubled since Apple joined the party.
But there's a serious downside to this newfound laser focus. It's a notoriously competitive market with tons of large-sclae providers, and management fully expects a bumpy ride. "Customer orders will continue to fluctuate and its gross profit would also be under more pressure in 2013," says the press release.
Nam Tai did sell off a less successful flexible circuit board division to pin down these gross margin gains, but the margin boost may still be temporary. Investors hate uncertainty. And in case you hadn't heard, Apple's orders may not be the gold standard of gadget manufacturing success for much longer.
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