Insituform Shares Got Crushed: What You Need to Know

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: With Congress gearing up to spend another big chunk of your tax dollars on "stimulus" and "infrastructure," you'd think happy days would be here again for novel pipe-laying tech play InsituformTechnologies (NAS: INSU) . Unfortunately, you'd be wrong. The shares plunged more than 10% today.

So what: For this, you can blame the analysts at Oppenheimer. Calling the firm's full-year earnings guidance "highly aggressive" (and by implication, unlikely to be met), Oppy downgraded Insituform shares from "perform" to "underperform" this morning.

Now what: Aggressive the guidance may be, but Insituform's share price looks downright beat down at just 12 times earnings (and 13% long-term growth projections). Indeed, even if Oppenheimer is right about Insituform being too optimistic about its chances of earning $1.30 to $1.40 this year, the $1 this analyst does think Insituform will earn seems plenty to justify the company's current $14 stock price.

Granted, I do have concerns about Insituform's failure to generate free cash flow at levels equaling or exceeding reported income. But if you're basing your buy/sell decision on reported GAAP earnings alone, as Oppenheimer seems to be doing, I simply don't see a reason to sell based on that number alone.

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At the time thisarticle was published

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