For top stocks, this week started out pretty well. The large indices all rose significantly and supported the prices of many well-known names on the market.
Many, but by no means all. The following two companies saw significant declines during the day. Let's dig into the reasons why – maybe the drops are a sign that more falls will come.
Quick, what is worse than a listed company lowering its revenue guidance? If you answered "admitting a potentially scary accounting scandal", you win a pair of expensive sports shoes.
This is the case with Under Armor (NYSE: UA) (NYSE: UAA) . The once-popular underdog-athletics clothing stock was one of the worst performers on Monday, covering 1
If it wasn't for the pair, Under Armor's shares would not have been knocked the way they were. The company's third quarter results of 2019 were announced on Monday, revealing a marginal decline in revenue to $ 1.4 billion. This largely met analysts' expectations.
On the other hand, GAAP net income increased 7% to $ 102 million ($ 0.23 per share), well above the $ 0.18 average of analysts tracking the stock.
But as investors know very well, equities deal with the potential, not the past. Under Armor, the revenue guidance for the entire fiscal 2019 trimmed. The top line was to be expanded by about 2%; the previous expectation was an increase of 3% to 4%.
Factors behind the cut include challenges in its direct-to-consumer (DTC) segment and inventory problems. Other elements of the guidance – such as expected earnings per share from $ 0.33 to $ 0.34 – were basically unchanged.
Investors may have been able to swallow a weaker earnings forecast. But what reinforced the bad news was Under Armour's admission that its accounting practices – more specifically its method and timing of revenue – have been under federal scrutiny for a couple of years.
This concession came on the heels of an explosive Wall Street Journal article which revealed that the Department of Justice (DOJ) is leading a non-public probe into the case, with assistance from the Securities and Exchange Commission (SEC).
Recognizes the strength of the Journal story, Under Armor issued a statement saying it "began responding in July 2017 to requests for documents and information primarily related to accounting practices and related information . "
and disclosures were appropriate, it added.
But a near fall of almost 20% in the share price shows that investors do not necessarily buy this. Situations like this are often the "tip of the iceberg" moment, with deeper problems emerging after the first reveal. For this reason alone, I would leave the Under Armor stock alone for the time being, even though the company has performed well in the past.
World Wrestling Entertainment
Shrunken guidance is also a factor driving down World Wrestling Entertainment (NYSE: WWE) stock. Since WWE reported its own third quarter of 2019 fiscal performance on Thursday, the shares have lost nearly 16% of value. On Monday, WWE saw a 5% drop.
WWE is an entertainment stock that basically delivers one type of entertainment (spoiler alert: professional wrestling; the movie studio unit is never a big factor in the results). As such, its basic commodity can be broken wild from quarter to quarter and from year to year.
That said, investors may not be comfortable with the significant drop in net profits and free cash flow revealed in the latest quarterly figures. And while revenue beat estimates, it was still somewhat lower than in Q3 2018.
This stock received a huge boost in mid-2018 after WWE was submitted a $ 1 billion deal to air its Smackdown! TV Show on Twenty-First Century Fox Fox Network.
Smackdown! finally began airing on Fox last month, and her ratings have so far been a kind of swing; Maybe some investors were expecting a monster hit right from the opening bell. However, it is still very early days.
I am a long-time WWE shareholder, so I don't get dizzy by the often violent fluctuations in basic basic relationships, or the ups and downs of Fox TV ratings. WWE has a unique product and it has been proven over the years that it can reliably make money from it.
I also think it's too early to decide how effectively WWE will capitalize on having a program on such a large platform as Fox; I think we will be pleasantly surprised by knock-on effects such as higher merchandise sales and perhaps better attendance at live events.
On top of that, the company just announced an extension of its lucrative agreement with the government of Saudi Arabia.
I believe in this stock, and I believe it is still a purchase at the current level.