This Week's 5 Dumbest Stock Moves
Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five dumb financial events this week that may make your head spin.
1. No one gets the last laugh when everybody's crying
Dangdang (NYS: DANG) saw its shares fall to the single digits this week after posting disappointing quarterly results. Sales for the Chinese e-tailer may have soared 53%, but a good chunk of that growth came from a spike in lower-margin merchandise sales. The bottom line is here that Dangdang posted a deficit that was three times larger than analysts were expecting.
There will always be performance misses, but the reason why this particular report makes the cut is because Dangdang was calling out its underwriters earlier this year. Shortly after going public at $16 and nearly doubling on its first day of trading, CEO Guoqing Li argued that self-serving investment bankers left money on the table at Dangdang's expense.
Well, now that Dangdang shares are trading for a little more than half of its IPO price, can the same argument be turned toward Dangdang?
The numbers are good at first read. Net sales climbed nearly 6% to $108.6 billion. Earnings per share from continuing operations spiked 12% to $1.09. However, there's a warning sign for every accolade.
- The sales rise is largely the result of a nearly 10% uptick at Sam's Club and a 16% increase internationally.
- The Sam's Club warehouse club concept is doing fine, but half of that top-line sales growth came from the impact of higher prices on its fuel sales.
- More than half of Wal-Mart's international growth -- $2.3 billion of the $4.2 billion difference -- was the result of currency exchange fluctuations.
- Earnings may have climbed briskly on a per-share basis, but that is primarily the result of aggressive share buybacks and a much lower effective tax rate. Pre-tax operating earnings actually rose by less than 2%, so profit margins at that level actually contracted.
- Comps actually fell 0.9% at domestic Wal-mart stores, making this the ninth consecutive quarter of negative same-store sales.
Shares of the world's largest retailer may have opened higher on Tuesday's earnings news, but the inner guts of Wal-Mart's performance aren't all that applause worthy.
3. Much Tudou about nothing
Why exactly did Tudou (NAS: TUDO) go public this week? It hasn't turned a profit since launching its video-sharing site six years ago. Higher-grossing rival Youku.com (NYS: YOKU) has seen its stock shed nearly two-thirds of its value since peaking four months ago.
Just because underwriters can hoodwink clients into paying $29 a share to get in on the IPO doesn't mean that it's the right thing to do. Todou posted an adjusted deficit of $5.7 million on a mere $17.8 million in revenue for the quarter that ended June 30. Does this sound like a company worth roughly $822 million, as its IPO implies?
Tudou should have waited. Seeing as the stock immediately tanked at Wednesday's open -- and had given up nearly a third of its IPO value by Thursday's close -- I guess IPO buyers should have waited too.
4. Googorola: The Musical
OK, let's address the $12.5 billion gorilla in the room.
The knee-jerk reaction was probably that Google was making a dumb bet on a meandering handset maker -- a move that would alienate HTC, Samsung, and others promoting Google's Android platform -- but this deal is bigger than that. Motorola has thousands of patents, and the rich tech companies seem to be snapping up patents as if they were tulip bulbs circa 1637.
The rub here is that Google is investing billions to protect a mobile platform that it's giving away. Yes, being a force in mobile operating systems should make it easier to be a force in mobile advertising, but it's hard to see this deal ever paying off.
The only way corralling Motorola's plentiful patents will pay off is if Google goes after the ones infringing on them -- but then it comes off as a tech killjoy. Lose your money or your reputation? It doesn't seem like a winning move.
5. All in all it's just another brick in the Wal-Mart
Baidu (NAS: BIDU) is in the crosshairs of China Central Television, the same state-owned channel that originally exposed a 2008 scandal involving the Chinese search giant serving up ads for unlicensed medical companies.
The new report complains about click fraud and query result credibility issues at Baidu.
Investors obviously don't like uncertainty, and the 2008 allegations ultimately led to Baidu conceding that cleaning up its act would result in a near-term hit on results.
Baidu is too smart to repeat the mistakes of its past, making this a dumb move this week if the expose's claims are on target.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
At the time this article was published The Motley Fool owns shares of Wal-Mart Stores and Google. Motley Fool newsletter services have recommended buying shares of Google, Baidu, and Wal-Mart, as well as creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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. Longtime Fool contributor Rick Munarriz is a fan of dumb and smart business moves. Investors can learn plenty from both. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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