By Todd Bunton
Polypore International (PPO) recently reported its 6th consecutive earnings miss as sales disappointed and profit margins declined.
Analysts revised their estimates significantly lower for both 2013 and 2014 after the Q3 miss, sending the stock to a Zacks Rank #5 (Strong Sell).
Although shares have recently sold off, the stock still does not look cheap at more than 30x forward earnings. Investors should consider waiting for earnings momentum to turn positive before establishing a position.
Polypore International is a high technology filtration company that develops, manufactures and markets specialized polymer-based microporous membranes used in separation and filtration processes. Its products are used in two primary segments: energy storage (69% of total sales) and separations media (31%).
Since Polypore was last selected as the 'Bear of the Day' on March 8, 2013, the stock has fallen more than -10%, compared with a +14% return for the S&P 500 over that stretch.
Third Quarter Results
Polypore delivered disappointing third quarter results on November 4. Adjusted EPS came in at 11 cents, well below the Zacks Consensus Estimate of 27 cents. It was the company's 6th consecutive earnings miss.
Net sales declined 6% to $152.0 million, well short of the consensus of $167.0 million. Excluding foreign currency translation, sales were down 7%.
Higher sales in the Separtion Media segment was more than offset by declines in the Energy Storage segment, namely within the Electronics and EDVs division as consumer electronics orders remained weak.
Meanwhile, adjusted EBITDA from continuing operations (including stock-based compensation) fell 21% to $37.7 million, or 24.8% of net sales.
Following the Q3 miss, analysts revised their estimates significantly lower for both 2013 and 2014, sending the stock to a Zacks Rank #5 (Strong Sell).
You can see the sharp decline in estimates in Polypore's 'Price & Consensus' chart:
The Zacks Consensus Estimate for 2013 is now $0.83, down from $1.17 before the latest earnings report. The 2014 consensus is currently $1.21, down from $1.62 over the same period.
Although shares of Polypore sold off following the Q3 earnings report, the stock still does not look cheap. Shares trade around 31x 12-month forward earnings, well above the industry median of 17x.
Its price to sales ratio of 2.5 is also well above the industry median of 1.2.
The Bottom Line
With declining sales, falling earnings estimates and premium valuation, investors should consider avoiding Polypore until its earnings momentum turns around.