This article will evaluate four companies that have recently had significant drops in their stock prices. The goal will be to determine if these companies can turn things around, or whether their stock prices continue to decline. Here is my fundamental analysis:
Netflix Inc. (NFLX) Netflix has a market cap of $5.95 billion with a price to earnings ratio of 28. The stock has traded in a 52 week range between $107.63 and $304.79. The current stock price is around $113. On July 25th, the company reported second quarter revenues of $789 million, compared to revenues of $520 million in the second quarter of 2010. Second quarter net income was $68.2 million compared to net income of $43.5 million in the second quarter of 2010.
One of Netflix’s competitors is Amazon.com (AMZN). Amazon is currently trading around $216 with a market cap of $98.18 billion and a price to earnings ratio of 95.38.
Netflix has been a remarkably successful company that has increased revenues and net income in each of the last ten years. In 2010 net income increased by 38.7% from $116 million in 2009, to $161 million in 2010. It appears that the stock got ahead of itself when it reached a 52 week high of $304.79. The stock has recently been selling off in extremely high volumes and is now almost 63% off of its 52 week high. For example, on September 29th, the shares dropped 10.97%. Netflix recent stock woes are primarily the result of the company losing the rights to continue streaming Starz and Sony (SNE) movies. In addition to the stock's poor performance, there is news that the company’s CEO Hastings Reed has regularly been using automatic sells to dump his personal shares of the stock. Netflix has been a highly profitable company for the last decade. Also, the company has the fifth lowest price to earnings ratio in the internet retail industry. After such a large drop in the stock price, I would not short this stock at this time. If I owned the stock, I would wait to see how its new agreement to stream movies and TV shows from DreamWorks (DWA) turns out.
Yukon-Nevada Gold CP (OTCQB:YNGFF) the stock of Yukon-Nevada Gold trades over the counter and has a market cap of $260.58 million with a negative price to earnings ratio. The stock has traded in a 52 week range between $0.27 and $0.90. The stock last traded at $0.28. In 2010, the company had net income of $-93.09 million and in 2009, net income was -$42 million and in 2008 net income was -$111 million. In 2010, stockholder equity decreased by 24%.
It seems that Yukon has not had any good news for years. The company consistently loses money and stockholder equity is on the decline. Over the last 52 weeks, the stock price has gone down by 59%. There have not been any news releases that would lead me to believe that the company will be able to turn things around. I believe that this company’s stock price will continue to drop and that shorting this stock might not be a bad idea.
Liz Claiborne Inc. (LIZ) Liz Claiborne has a market cap of $473 million with a negative price to earnings ratio. The stock has traded in a 52 week range between $4.02 and $7.90. The current stock price is around $5. On July 28th, the company reported second quarter revenues of $556 million, compared to revenues of $570 million in the second quarter of 2010. Second quarter net income was -$89.9 million compared to net income of -$86.8 million in the second quarter of 2010.
One of Liz Claiborne’s competitors is the Ralph Lauren Corporation (RL). RL is currently trading around $130 with a market cap of $11.68 billion and a price to earnings ratio of 20.14.
Liz Claiborne has had negative earnings in each of the last four years. Over the last four quarters, the company has lost $279 million. The losses operating cash flow over the last two quarters is -$82.62 million. These recent earnings reports have startled investors, and the stock is down by 20% over the last 52 weeks; 36.7% off of its 52 week high. In an effort to turn things around, the company has made a deal to sell its money-losing Mexx brand division. Unfortunately, the sale of the Mexx division will probably not be enough to pull the company out of its downward earnings trend. I believe that the company will continue to report negative earnings and that the stock price will continue to go down. Shorting Liz Claiborne Inc. might not be a bad idea, and I rate the stock as a sell.
InterOil Corporation (IOC) InterOil has a market cap of $2.34 billion with a negative price to earnings ratio. The stock has traded in a 52 week range between $37.90 and $81.98. The stock is currently trading around $49. The company reported second quarter revenues of $304 million compared to revenues of $225 million in the second quarter of 2010. Second quarter net income was $23.5 million compared to net income of -$7.83 million in the second quarter of 2010.
One of InterOil’s competitors is Woodside Petroleum (OTCPK:WOPEY). Woodside is currently trading around $31 with a market cap of $24.49 billion and price to earnings ratio of 16.63.
In the period between September 19th and September 30th, the stock price of InterOil dropped by 29.6%. The reason for the selloff is because the New Guinea Energy Minister, William Duma, made a statement saying that InterOil was promoting a "fragmented" project and none of the companies currently involved has the experience necessary to operate a "world class" LNG project. InterOil released a statement saying that it was evaluating proposals from potential strategic partners in the liquefied natural gas ("LNG") project. Without a partner, the company would have no way to transport the gas to market which would make the gas reserves useless. If InterOil is able to secure a partner, and complete the project, the stock price should rebound. If they are unable to secure a partner, the company will be in deep trouble. It is too early to know how this situation will turn out. I would advise investors to stay away from this stock, until there is more clarity about how this predicament will be straightened out.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.