Themarket gets it right about 90% of the time. That's been my
experience with stocks that take a big hit or post a big rally. The
other 10% of the time: themarket reaction appears simply misplaced,
and investors need to be patient and wait for logic to eventually
I've been thinking about that as I review quarterly results for
, which is a member of my
$100,000 Real-Money Portfolio
The car-sharing company posted a solid quarter, issued (likely
conservative) 2012 guidance that is roughly in-line with current
forecasts, and the stock got crushed on the news, falling a
This is a stock that calls for a level of meta-analysis, and not
just plain old analysis, divining what investors are thinking
rather than the business this company is actually doing.
In recent weeks, a few analysts issued research updates that
predicted that Zipcar would post a strong quarter. For example,
Needham & Co. issued a report last month, noting that "Based on
our proprietary utilization checks, we believe Zipcar's 4Q11
revenue should exceed expectations."
[block:block=16]They figured the company would bag $63.3 million in
revenue, just ahead of the $63.1 million consensus forecast.
Instead, sales came in at just $62.9 million, meaning the company
missed top-line forecast by 0.3%. Investors chose to overlook the
fact that Zipcar earned $0.10 a share in the quarter ($0.04 a share
when one-time gains are excluded), while the mostbullish forecasts
anticipatedearnings per share (
) of just $0.01.
Shares may also be responding to the fact that Zipcar is boosting
spending in the current quarter to prepare for the seasonally
stronger second and third quarters. Analysts had been expecting a
$0.07 a share loss, but management suggests it may be closer to
Frankly, the quarterly results shouldn't be driving this stock. The
fourth quarter is the company's seasonally slowest, as "Zipsters"
take fewer road trips during the winter.
Perhaps the real reason this stock is under pressure is because
management once again sought to establish a low bar for the periods
ahead. Zipcar crushedEPS forecasts in the June 2011 and September
2011 forecasts as well, exceeding the consensus by 23% and 300%,
respectively. As I'll note in a moment, management's failure to
issue 2012 guidance above current forecasts appears to have angered
Investors had been expecting Zipcar to boost sales 21% to $293
million in 2012. The fact that management anticipates sales in a
range of $290 million to $296 million, or $293 million at the
mid-point of that range, likely comes as a disappointment to some.
Thenet income target of $2 million to $6 million works out to be a
range of $0.05 to $0.15 in terms ofEPS . Analysts had been
forecastingEPS of $0.10. So in effect, forward forecasts are
unlikely to change, and still, the stock is getting crushed. Were
it not for the increased spending planned for the current quarter,
full-yearprofit forecasts would have been ahead of the consensus
This is a classic conundrum of young, fast-growing businesses. As
we've seen with stocks like
Cree Inc. (Nasdaq:
in my portfolio, investors will focus solely on quarterly trends
and completely ignore the long-term path. Zipcar is building a
business that won't reach maturity until the middle of this decade.
The company's 2012profit levels are largely irrelevant. What is
relevant is that key operational metrics show ongoing improvement.
And that is surely the case with Zipcar. On a year-over-year-basis,
almost all of the company's trends are moving the right way.
Risks to Consider:
This stock is off about 8% since
you first read about it
last month, and off by low double-digits from the time I
boughtshares two days later. As I wrote last month, "To be sure,
this stock does not enjoy the downside support my other portfolio
could easily move toward the $10 mark (from a current $15) if
growth materially slowed." Growth hasn't slowed, but I still think
that figure represents the potential floor, and current
shareholders may look to put in a stop-loss around $12.50 just in
case more of the company's original backers seek to further lighten
their holdings, creating fresh pressure on the stock.
Action to Take -->
I started off with an initial $6,000 investment in this stock last
month, and frankly, I'm inclined to build an even bigger stake. But
history has shown that it's wise to wait a bit to give more time
for any other investors looking to sell this stock to be shaken
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of CREE, ZIP in one or more if its "real money"
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