Every long time investor knows that market reactions can be strange.
Sometimes, a company acquires another one and the acquirer goes a lot lower even if it's a very good acquisition.
Sometimes, a company has bad results and the stock price goes up. Sometimes, the results are good and the stock price goes down.
I have two recent examples:
Dorman Products (DORM) recently released it's results. Analysts were expecting 70 cents EPS and the results were 65 cents EPS. The company also missed the expectations about revenue. The growth with comparable quarter last year was anemic. In the following days, the stock price went up more than 10%.
Portfolio recovery and associates (PRAA) released it's results yesterday. The EPS and revenue were under expectations but were nonetheless good in my opinion. Analysts were expecting 1,15$ EPS and the company got 1,06$ EPS. The EPS for comparable quarter last year were 74 cents. So, EPS are up 43%. Return on equity is also pretty good at 23,5. Today, shares are down 10%.
Both companies didn't meet analysts expectations and one is up 10%, the other one is down 10%. The one that is up has anemic growth and the one that is down has good growth.
I sold all of my Dorman shares because I was tired of such low growth and excuses about their ERP system issues. I would however be tempted to buy more PRAA shares because the price of the stock is very low for such a good growth and good ROE (a 24 ROE with a 10-12 forward PE is equivalent to ROE/PE = 2, which is very good).