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One big reason estimates continue to fall is that the company guided analysts lower following the most recent earnings release. The company told Wall Street they expect earnings per share of between $0.39 and $0.43, but the Wall Street Consensus for the quarter was $0.46.
Liquidity Services operates various online auction marketplaces for surplus, salvage, and scrap assets. The company's auction marketplaces include liquidation.com that enables corporations to sell surplus and salvage consumer goods and capital assets; govliquidation.com, which enables selected federal government agencies to sell surplus and scrap assets; and govdeals.com that enables local and state government entities, including city, county, and state agencies, as well as school boards and public utilities to sell surplus and salvage assets. Liquidity Services was founded in 1999 and is headquartered in Washington, District of Columbia.
LQDT is a prime example of why you cannot put too much faith in a company that is always beating the number. Seems they have topped the Zacks Consensus Estimate in each of the last seven quarters, but did they really? The last three quarters were all beats of a penny, and the most recent beat came after the company lowered guidance in the middle of the quarter.
Things were much better at the end of 2011 and the start of 2012. The company was beating the number soundly, including beats of 39% and 45% for the December 2011 and March 2012 quarters. LQDT was a big winner for subscribers of Home Run Investor, a service that looks for aggressive growth from small cap stocks, during that period of outperformance.
Earnings Estimates Slip
Estimates for LQDT have been sliding lower all year. Starting in January, the 2013 Zacks Consensus Estimate was $1.81, but that soon fell to $1.72 the following month. Estimates dropped to $1.58 in July and are now at $1.50.
2014 Estimates have also been slashed. The year started off with expectations of $2.36. That seems like a lifetime ago and current estimates are calling for $1.66.
2013 is expected to have -8% earnings growth, while the ship is slated to turn around in 2014 with 10% earnings growth.
The valuation picture for LQDT is one that is in line with the industry average. Trailing PE shows the company trading at a minimal discount to the industry average while the forward PE has the company trading at a slight premium. Price to book and price to sales are mostly in line with the industry averages. The real issues are margins, with LQDT showing a net margin of 7.6% while the industry average is up around 12.2%. Factor in the 10.7% expected EPS growth rate for 2014 and compare that to a 15.6% industry average and you can see that there are probably better spots to look.
The price and consensus chart really tells the story of what is going on at LQDT. The estimates have been pointing the wrong way, sliding lower over time. The stock is following the estimate lines lower and the only question becomes when can the company improve margins and earnings growth? Right now, a safer spot in the auction market might be found in BID.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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