The market may be stronger than you think.
The S&P 500's 8.7% gain through the first two months of the year represents the popular market metric's best start to a year since 1991.
It's easy to feel good about corporate America after gains like that, but let's not assume that stocks will keep rising just because this is an election year. Sooner or later, fundamentals are going to have to speak for themselves, and you may not like what they have to say.
There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.
There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.
Latest Quarter EPS (estimated)
Year-Ago Quarter EPS
Bridgepoint Education (NYS: BPI)
Canadian Solar (NAS: CSIQ)
JinkoSolar (NYS: JKS)
Sigma Designs (NAS: SIGM)
Home Inns & Hotels (NAS: HMIN)
Source: Thomson Reuters.
Clearing the table
Let's start at the top with Bridgepoint Education.
These have been rough times for the for-profit post-secondary educators. The government and skeptics are wondering about the effectiveness of some institutions, while abysmally low student loan repayment rates indicate that a lot of people aren't taking "higher learning" seriously.
Earlier this week, the parent company of The University of Phoenix -- one of the better known Web-based campuses -- hosed down its enrollment guidance. It's under this unwelcome environment that Bridgepoint finds itself on the earnings stage Tuesday.
The good news for Bridgepoint bulls is that the educator has been routinely blasting through Wall Street's profit targets. Over the past four quarters, Bridgepoint has beaten analyst estimates by 21% or better. In other words, if the trend holds up, Bridgepoint may not be posting a dip in profitability after all.
Canadian Solar and JinkoSolar are obviously companies in the brutally volatile solar energy space. The table above isn't pretty. Can both companies really be going from meaty profitability a year ago to significant losses this time around? You better believe it!
Waning demand from cash-strapped countries has resulted in free-falling prices, but even that hasn't been enough. When a solar company reports -- as many have last month -- it's probably best to hold one's nose.
There's no denying that solar energy will be relevant in the future, but the near term hasn't been as bright as our nearest star.
Sigma Designs specializes in connected media platforms. In a time when everything from set-top boxes to media players leans on cyberspace to deliver entertainment and functionality, Sigma would seem to be in the right place at the right time.
Well, it may be the right time, but Sigma appears to be in the wrong place. Analysts see revenue being shaved nearly in half. Last year's profit transforming into a deficit? Are we sure this isn't Sigma Solar?
Finally, we have Home Inns & Hotels reporting. There are three Chinese lodging chains that trade publicly on stateside exchanges. They're all reporting next week. Home Inns was the first to go public and the one that's the most widely known by investors.
Did China give up on lodging? Of course not. Analysts see revenue at Home Inns soaring 71% for the quarter. The rub here is the heavy costs behind Home Inn's breakneck expansion.
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.
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At the time thisarticle was published The Motley Fool owns shares of Bridgepoint Education. 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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