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Bear of the Day: Issuer Direct (ISDR)

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Issuer Direct (ISDR - Free Report) operates as a communications and compliance firm. The company provides press release distribution, media databases and monitoring, and news dissemination. Issuer Direct also offers a cloud-based webcast and virtual meeting platform that delivers live and on-demand streaming of events.

The company delivers its solutions to both public relations and investor relations professionals in the United States and internationally. Its clients include mutual funds, law firms, brokerage firms, investment banks, and other public and private institutions.

The Zacks Rundown

Issuer Direct, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Commercial Printing industry group. This industry ranks in the bottom 8% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the prior 3 months:

Zacks Investment Research
Image Source: Zacks Investment Research

Candidates in the bottom tiers of industries can often be potential candidates for short positions. While individual stocks have the ability to outperform even when included in a lackluster industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Despite a rebound in stocks over the past month, ISDR shares have not been printing lately. The stock has experienced considerable volatility over the past year. Shares recently hit a 52-week low following a disappointing earnings report and represent a compelling short or hedge opportunity.

Recent Earnings Misses and Deteriorating Outlook

ISDR has fallen short of earnings estimates in two of the last four quarters. The communications company most recently reported third-quarter earnings last month of $0.27/share, missing the $0.35/share consensus EPS estimate by -22.86%. Earnings were flat relative to the same quarter in the prior year.

Issuer Direct has posted a trailing four-quarter average earnings miss of -7.04%. Consistently falling short of earnings estimates is a recipe for underperformance, and ISDR is no exception.

The company has been on the receiving end of negative earnings estimate revisions as of late. The current quarter’s outlook has been slashed by -18.75%. Looking ahead, the 2024 Zacks Consensus EPS Estimate stands at $1.08/share, reflecting negative earnings growth of -22.3% relative to this year.

Zacks Investment Research
Image Source: Zacks Investment Research

Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, ISDR stock is in a sustained downtrend. Notice how shares have plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.

Image Source: StockCharts

ISDR stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. Issuer Direct would have to make a surprising move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. ISDR shares have fallen more than 38% this year alone, all while the major indexes have shown strength.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to print new highs anytime soon. The fact that ISDR stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Highlighted underperformance bodes well for the bears. Potential investors may want to consider including this stock as part of a short or hedge strategy. Bulls will want to steer clear of ISDR shares until the situation shows major signs of improvement, as there are plenty of better alternatives in the current market environment.

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