5 Reasons to Worry About Next Week
The economy is showing signs of life.
An encouraging report this week reveals that initial unemployment claims are at the lowest point that they have been at in four years. Are only clear skies ahead? Well, not so fast.
There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.
There are still plenty of companies posting lower earnings than they did a year ago. Let's go over a few of the names that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (Estimated)
Year-Ago Quarter EPS
|Ctrip.com (NAS: CTRP)||$0.27||$0.30||Add|
|Barnes & Noble (NYS: BKS)||$0.92||$1.00||Add|
|Garmin (NAS: GRMN)||$0.65||$0.83||Add|
|InterDigital (NAS: IDCC)||$0.46||$0.76||Add|
|OmniVision (NAS: OVTI)||$0.13||$0.84||Add|
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Ctrip.com.
China's leading travel website isn't necessarily shrinking. Analysts actually see revenue growing 24% when the company reports Monday night. The rub here is that Wall Street is braced for contracting net profit margins.
The long-term growth potential of leisure and corporate travel in China is undeniable, but Ctrip isn't likely to live up to its role in the Chinese miracle next week.
Barnes & Noble is selling a ton of Nook e-readers and tablets, and that's actually weighing on the bookseller's profitability.
Bulls may argue that net income of $0.92 a share would make for a great quarter, but this is the company's seasonally strongest period. It's getting harder for the company to close out the balance of the year in the black, and this will probably be Barnes & Noble's least profitable holiday quarter in years.
This should have been a monster quarter for Barnes & Noble. Its closest rival -- Borders -- liquidated over the summer. Unfortunately, consumers are migrating from traditional books to digital reads faster than bibliophiles thought possible. Barnes & Noble was smart enough to put marketing muscle behind its Nook platform, but Kindles and iPads are more popular.
The way things have been going for Barnes & Noble -- with holiday quarter earnings per share shrinking with every passing year -- one can only imagine where we'll be next year.
Garmin may seem like an obvious casualty on this list. Who needs one of the company's GPS modules when smartphones can help us get around these days? Many cars already have non-Garmin turn-by-turn navigation offered in their higher-priced models.
However, Garmin isn't just about its bread-and-butter GPS devices. Its gadgetry is used far away from the car through marine, aviation, and hiking applications. Strength in those businesses, sadly, haven't been enough to offset the decimation of its traditional GPS business.
InterDigital is rich in intellectual capital, but apparently not rich enough. The wireless-technology company was smoking out patent-hungry suitors last year, but that search ended last month. Wall Street now has to value InterDigital as a stand-alone company, and it's not a good sign that revenue is expected to take a 22% slide this quarter and profitability will fall even harder.
Finally, we have OmniVision. A little more than a year ago, OmniVision was the thinking investor's way to play the smartphone revolution. OmniVision makes the image sensor devices that were growing popular as more wireless phones beefed up their cameras.
It's a harder life these days. Smartphone cameras have become a cutthroat commoditized business, and OmniVision's bottom line is taking the hardest hit of the five public companies on this list.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
If five reasons to worry aren't enough, let's make your future No. 6. There's a singleshocking truth about your retirementthat you may not know. It's part of a free report that won't be around forever, socheck it out now.
At the time this article was published The Motley Fool owns shares of Ctrip.com International. Motley Fool newsletter services have recommended buying shares of Ctrip.com International and InterDigital. 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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