Here's Why Ruby Tuesday Is Sinking Right Now

Jan. 8.14 | About: Ruby Tuesday, (RT)

Ruby Tuesday (NYSE:RT) shares are down about 13% in 2 days. The casual dining restaurant chain's stock has slipped from $7.03 to $6.12 as they approach their FQ2'2014 earnings release scheduled for after the market closes on Wednesday, January 8th. Last year was a phenomenal year across the board for U.S. equities, but RT somehow managed to drop 14%. In their previous 2 earnings releases, Ruby Tuesday has missed analyst expectations for profit and revenue by wide margins, and analysts are expecting more of the same Wednesday.

The information below is derived from data submitted to the Estimize platform by a set of Buy Side and Independent analyst contributors.image

The green line which represents Ruby Tuesday's profit over the past 2 years has missed the Wall Street consensus in 7 of the past 8 quarters and has never beaten it. Over the same 2 years, Ruby Tuesday has also experienced year-over-year profit shrinkage in pretty much every quarter. image

These deteriorating fundamentals, especially in the previous 2 quarters, have had big implications to the company's stock price. image

The two big red candles at the far right represent the drops in the past 2 trading days. The stock is selling off going into the report, analysts are expecting RT to report a loss and investors don't want to be holding this stock when the quarterly financial results are announced.

At Estimize we crowd-source earnings expectations from buy-side and independent analysts. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, students, and non professional investors, the Estimize community has built a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. While some contributors are prominent hedge funds, we accept estimates from anyone because we are able to measure so well statistically. Algorithms developed by our deep quantitative research look at correlations between analyst track records and tendencies as they relate to future accuracy to create confidence ratings for all estimates, so it's impossible to screw up the data set without a history of precision.

image

If you look at the table for this quarter, Wall Street is expecting -21c EPS while the Estimize community consensus is forecasting -23c. This differential is often an indicator that earnings expectations may not have been priced into the market. As indicated by the Estimize consensus, it's clear that the market is expecting Ruby Tuesday to report a bad quarter. A negative differential between the Estimize consensus and Wall Street expectations has been shown by our quantitative research team to be associated with a downward drift in stock price over the 3 days going into the report if you benchmark against the market. That's exactly what we are seeing here with Ruby Tuesday, with deteriorating fundamentals on top of it.

Disclosure: No positions.