Why Gildan Activewear Shares Plunged

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: Shares of sportswear specialist Gildan Activewear (NYS: GIL) sank 10% today after posting weak second-quarter results and announcing the purchase of shirt supplier Anvil Holdings.

So what: The stock has risen nicely in recent months on solid signs of a recovery, but a 56% quarterly profit drop on spiking cotton prices is forcing Mr. Market to sober up a bit. And given Gildan's already-debt-heavy balance sheet, the $88 million acquisition of Anvil -- which will be financed through its bank credit facility -- seems to be adding to the investor anxiety.

Now what: For the full year, management sees adjusted EPS of $1.30 on revenue of $1.95 billion, versus Wall Street's view of $1.31 and $1.91 billion. "We expect to end fiscal 2012 with strong earnings momentum, as we benefit from lower cotton costs and achieve better equilibrium between cotton cost and industry selling prices," CFO Laurence Sellyn said in a conference call with analysts. With the stock now down about 30% from its 52-week highs and trading at a reasonable forward P/E, today's pullback might be a good chance to buy into that turnaround talk.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. 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 Fool's disclosure policy always gets a perfect score.

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