Why Lithia Motors Shares Dropped

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 Lithia Motors were selling off today, falling as much as 12% after posting disappointing guidance in its third-quarter report.

So what: On its face, the car dealership chain had an impressive quarter, as it saw adjusted net income grow 27% to $29.6 million, its most profitable quarter ever. Revenue, meanwhile, grew 22% to $1.07 billion. Both revenue and profits beat earnings estimates. CEO Bryan DeBoer noted that Lithia had "another solid quarter of sales growth that outpaced the national rate of recovery." What seemed to throw off the market, however, was Lithia's fiscal 2014 EPS guidance of $4.15-$4.25, below analyst estimates of $4.45.

Now what: The pullback in Lithia shares today could also be related to the stock's rise over the course of the year, as shares had doubled before today's drop. Lithia's earnings beat was also was smaller than it's posted in the past four quarters. Still, I'd expect management to be providing conservative guidance for the next year, as continuing bullish activity in the auto industry should lift next year's earnings by more than 7%. Given that, I'd expect to see more earnings beats in Lithia's future.

The auto industry isn't the only one making a comeback
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

The article Why Lithia Motors Shares Dropped originally appeared on Fool.com.

Fool contributor Jeremy Bowman and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.