Innospec Shares Dropped: What You Need to Know

Before you go, we thought you'd like these...
Before you go close icon

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Specialty chemicals maker Innospec (NAS: IOSP) is due to report Q2 earnings in just a few short hours. Investors aren't waiting around for the shoe to drop. They're selling out ahead of earnings, and the stock is down 9% as of this writing.

So what: Can you blame them? I mean, last week, Innospec rival Polypore (NYS: PPO) reported absolutely fabulous earnings -- up 85% year over year. The stock sold off 10% anyway. Who wants to sit around for an encore of that performance?

Now what: Polypore's problem was that it planned to expand manufacturing capacity for its line of lithium-ion membranes, hurting Q3 earnings. There's no reason to believe Innospec will be adding capacity, though. More importantly, the stocks differ in another key respect: valuation. When Polypore sold off, it was selling for 40 times earnings, and looking to get even more expensive. Innospec, in contrast, costs only 6.6 times earnings today. While an earnings miss, or weak guidance, could certainly change the equation and make the stock look more expensive, the risk still looks much lower than what we saw at Polypore last week.

Will Innospec spook the market tonight?Add the stock to your Fool Watchlistand find out.

At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of either company named above. The Motley Fool has adisclosure policy.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners