In Greek mythology, Icarus was the son of Daedalus. Daedalus
created wings from feathers and wax and they used them to escape
Crete. Problem is that Icarus flew to high and the sun melted
the wax and he fell from the heights. Social Media and recent
tech IPO investors are feeling the same.
Some say these stocks have fallen enough, and now is the time to
buy. Others believe that these stocks will drop much, much more.
Let's take a look at a few stocks that have been scorched by
investors hubris that matches that of Icarus.
Fireeye (FEYE - Snapshot Report) provides security platform for cyber-attacks to enterprises and governments. It seems like every few months we see a new major business has been hacked and its customers are left exposed. The most recent one that I can think of was Target.
Right now, the stock is a Zacks Rank #2 (Buy), but that is just the opposite of what investors have been doing with the stock since early March. Around that time, the stock reached an all-time high of $97.35, but since that time, it is down more than 54%. That is a steep drop in a short amount of time.
In times like this, analysts are a little slower to move their estimates on their earnings models as they don't want to add fuel to any fire. FBR Capital is a great example of this as they came out in early March with a new target price for FEYE, they bumped it to $105 from $90.
The Zacks Consensus Estimate for this stock has been improving of late. The 2014 Zacks Consensus Estimate bottomed out in February with analysts calling for a loss of $2.36 per share. A few tweaks to some models resulted in a slightly better number in April as they now expect the company to lose $2.30 per share this year.
The 2015 Zacks Consensus Estimate also saw a bump from a loss of $2.11 to a loss of $2.02 over the same time period.
With two earnings reports under their belt, this company has a very limited operating history. One beat and one miss of the Zacks Consensus Estimate is not enough to make an investment decision on, but there is something that would probably catch the eye of Icarus.
Revenue growth has been solid, with the company reporting $43M in the September 2013 quarter and $57M in the December 2013 quarter. The next quarter to be reported, the March 2014 quarter is expected to see revenue grow to $72M.
The company is slated to report results May 6 after the close. The Zacks Consensus Estimate is calling for a loss of $0.60 compared to a loss of $0.42 in previous quarter.
A few weeks ago, Imperva (IMPV) warned that it would come in below Wall Street expectations. That warnings has caused several cyber security stocks to sell off. The question is, are the sellers done? Keep in mind that this stock first came public (IPO) on September 16, 2013. It was priced at $20, above the $15-$17 range and opened for trading at $40.30.
Big Data, Big Pain
While I am a fan of the idea of big data, investors have been big sellers of big data.
Tableau Software (DATA - Snapshot Report) is a Zacks Rank #3 (Hold) and has been alternating between that rank and a #2 (Buy) over the course of 2014. The company makes software that enables users to "see" the massive amounts of data via charts and graphs. Customers seem to love the tools, but investors have been seeing red.
The June 2013 quarter had the Zacks Consensus Estimate calling for a loss of 17 cents, but the company reported a loss of 5 cents. That was a beat of 70%. On the topline, the company came in at $50M, $7M more than expected.
The September 2013 quarter was an even bigger beat, as the company posted a profit of $0.03 when the Zacks Consensus Estimate called for a loss of $0.13. That means a 123% positive earnings surprise. On the topline, The company posted another beat, this time $10M more than expected.
Finally we have the December 2013 quarter which was reported on February fourth. The company posted earnings of $0.16 per share when the Zacks Consensus Estimate was looking at a loss of $0.06 per share. So a $0.22 beat or 366% ahead of expectations. The topline came in $15M ahead of expectations and for the second consecutive quarter, the topline surprise increased in size from a large base of 17% back in June.
Those three quarters were just what investors wanted to see, but when the Zacks Consensus Estimate for 2014 slipped from a loss of $0.42 to a loss of $0.56, the writing was on the wall. Of course hindsight is 20/20 and I had recommended this stock to subscribers of Home Run Investor just as the estimates were turning lower.
The company is expected to report on May 5 after the close. The Zacks Consensus Estimate is calling for revenue of $63M, down from $81M in the prior quarter. Earnings are expected to swing to a loss of $0.19, down from a gain of $0.16 in the previous quarter.
Daedalus would have been proud of the tools that DATA makes to help its customers. They are both interesting and useful. Investors, however have been sellers of the stock since it hit a high of more than $100 per share. A fall of some 40% for this stock is where we stand right now.
Not Just Tech
You may think that it is just tech stocks and recent IPO's like FEYE and DATA that are seeing pain, but there are others. Some investors wanted to grow their assets by investing in the agricultural chemicals space. Only thing that has been harvested lately is capital losses for investors.
Rentech Nitrogen Partners (RNF) has also seen a decline of about 50% from its 52 week high. The only difference is the fall hasn't been that recent.
The chart below shows the stock reaching a high of more than $45 back in early 2013. While most stocks ran higher in 2013, RNF failed to produce.
The point here is that while tech stocks and recent IPO's dominate the headlines of the stocks that have been cut in half in recent trading, there are plenty of other stocks in other sectors going down as well.
The question becomes if the stocks investors have fled to in search of safety see the same selling.
Investors have been selling stocks. Not all stocks and not all at once, but there has been plenty of selling. The potential for a pullback in May is looming over the market and while some stocks have already seen pain, there could be a lot more in those and others.
A wise old saying goes something like this: "The market will stay irrational longer than you can stay solvent." Just make sure you have some powder dry if there is a big downturn. And remember, it wasn't the sun that killed Icarus, it was the sea. Maybe he should have learned to swim?
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Brian Bolan is a Stock Strategist
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