mardi 11 août 2015

About market reactions (DORM and PRAA)

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.

Pretty wierd.

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).

7 commentaires:

  1. What are your thoughts on CGI Group?

  2. I just bought CGI shares about 10 minutes ago, for me, for my sister, father and mother. They are full of cash. They should acquire something big this year or in 2016. It's a buy.

  3. Haha, that's awesome - I'm looking at some for my wife. Have you looked at Prism Medical or is it a right-off given it trades on the Venture and you don't like the Venture given the reasons your wrote about before...? I don't like the visual of lifting old people in and out of bath tubs but I like the business of lifting old people in and out of bath tubs...

    1. After a quick check up, it looks good. But I haven't check results in the long run. I think that to invest on the venture once again, I would need to find a company that has at least 3 or 4 years of growing earnings.

  4. I haven't heard about this company. I'll check this out.

  5. I think CGI is great, but I'm a bit worried about buying anything new right now as everything is falling.

  6. Hey it's exactly the right time to buy!

    I've been buying a lot in the last few days.