Why DreamWorks Stock Spiked

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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: Shares of DreamWorks Animation were delighting investors today, finishing up 17% after a better-than-expected earnings report.

So what: The animated-film studio made a profit of $0.12 a share in the quarter, much better than breakeven expectations, while revenue fell 17% to $154.5 million, which was also well ahead of the consensus at $139.5 million. Profits were off sharply also, falling 59% on the poor box-office performance of Turbo, though that didn't seem to bother the market. CEO Jeffrey Katzenberg focused on the upcoming movies the company has in the pipeline on the call, and noted that competition among animated films would be lighter next year. Turbo, he said, was competing against five other animated movies when it was released. The studio plans to release three pictures next year.

Now what: The movie business is notoriously unpredictable, so investors may not want to put too much weight in the quarter's poor profits or the stock's jump on the earnings beat. DreamWorks is a highly respected animation house whose movies usually crush it at the box office. Even Turbo grossed $246 million worldwide, a figure that would make most filmmakers green with envy, but that was still considered disappointing for the company. DreamWorks stock is pricy at a forward P/E of 36, and its chart has had huge swings over the past 10 years, which seems inherent the industry. Shares may go up from here, but they should probably come with a warning label.

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The article Why DreamWorks Stock Spiked originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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