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.
Netflix shocked investors by forecasting that it will lose both DVD and streaming subscribers during the current quarter. It's also now bracing investors to expect deficits early next year, as the costs of expanding into Ireland and the United Kingdom won't be enough to offset profitability closer to home.
Gee, expanding into 44 countries over the past 13 months hasn't forced profitability to take a holiday. Shouldn't the recent price hike make Netflix more profitable? If this keeps going, Netflix shares may be as valuable as Qwikster stock!
2. Amazon's fired up holidays
Netflix isn't the only former dot-com darling shocking investors with fears of short-lived deficits.
Amazon potentially posting a loss during the seasonally potent holidays? That is so 1997.
There's a good reason for the red ink. Amazon is selling Kindles for as little as $79 and its new Kindle Fire tablet hits the market next month at $199. We don't know how profitable these items are for Amazon, though hinting at an operating deficit can't be too encouraging in assuming what the margins on these gadgets are.
At least Amazon can point to the future. Selling millions of Kindle Fire tablets and Kindle e-readers at cutthroat prices this quarter should be the catalyst for a ton of high-margin digital purchases in the future. Amazon has the right long-term view, though the whiff of an operating loss is an unwelcome surprise.
3. This fizzy drink stock has gone flat
Shares of SodaStream (NAS: SODA) fell 8% Wednesday, after CNBC's Herb Greenberg played up Primo Water's (NAS: PRMW) Flavorstation as a potential threat to SodaStream's home carbonation system.
There's no material news here. Bottled water distributor Primo bought Flavorstation parent Omnifrio seven months ago. The system has been a dud in the past, only getting as far as SkyMall in terms of visibility.
Primo Water will help. It has relationships with grocery stores where it offers exchangeable 3- and 5-gallon bottles of water. Logically, one might think that it can embrace that model to offer its carbonator refills the same way, but just wait until the supermarkets get an earful from the soda giants that dominate an entire aisle of the store.
Either way, we still don't have an official release date. There are zero distributors. The website's been up since last week. The news has been out since March. There's nothing wrong in reacting to news on CNBC, but investors need to learn to filter out the non-news events.
4. From red mailers to red boxes
Didn't Coinstar (NAS: CSTR) learn a thing from Netflix's price hike? The company behind the disc-spewing Redbox kiosks revealed last night that it's boosting its rates. Nightly DVD rentals will now climb 20% to $1.20 starting Monday.
Two dimes may not seem like a lot of money, but keep in mind that Netflix's unlimited DVD plans actually became $2 cheaper when it began charging for streaming. Why move from the popular "dollar menu" pricing?
Customers will also question why they're paying more? Coinstar's revenue and earnings from continuing operations climbed 23% and 73%, respectively, in its latest quarter. In other words, margins are already expanding under the current rate.
5. Hack a Shack
RadioShack (NYS: RSH) is doubling its dividend. The small-box consumer electronics specialist will pay a $0.50 a share annual dividend and then move to quarterly installments of $0.125 a share every three months.
Payout hikes rarely make this weekly listing of dumb news, but RadioShack's new 4.2% yield isn't as good as it looks.
RadioShack posted an adjusted profit of $0.15 a share in its latest quarter, well short of the $0.38 a share that analysts were expecting. The sweetened distributions are merely a ploy to distract investors. RadioShack may be pumped about its mobile prospects, but how much longer can these meaty dividends continue if earnings continue to go the wrong way?
If you want to track these companies to make sure that they don't make another dumb mistake soon, consider adding them to My Watchlist.
- AddSodaStream Internationalto My Watchlist.
- AddRadioShackto My Watchlist.
- AddPrimo Waterto My Watchlist.
- AddNetflixto My Watchlist.
- AddCoinstarto My Watchlist.
- AddAmazon.comto My Watchlist.
At the time this article was published The Motley Fool owns shares of RadioShack. Motley Fool newsletter services have recommended buying shares of Amazon.com, Netflix, and SodaStream International. 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 calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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