Every year, we see a bunch of big name blowups, whether it be to accounting issues, lack of growth, earnings warnings, or whatever. 2011 was not different in that respect. We saw several big name blowups. Netflix (NFLX) collapsed after raising prices and forcing customers to leave. Green Mountain Coffee Roasters (GMCR) plunged after David Einhorn set a short campaign against the stock and then it missed revenue expectations. Sodastream (SODA) fell when the company's murky guidance worried investors, and let's not forget Diamond Foods, whose financial reporting issues crushed the stock.
But 2011 is behind us. We are almost two months into the new year. Green Mountain and Netflix have rallied back, showing impressive gains after great earnings reports. Could they collapse again in 2012? Sure, it is possible. But they don't make this list, not at this point anyway. Here are five stocks that could collapse in 2012.
Sprint (S): Sprint is in the midst of a turnaround, but I still believe we are still well away from the bottom of this stock. While the company did sell a ton of iPhones in the 4th quarter, more than expected, the company posted a much larger loss than expected. Large losses are not uncommon to Sprint, as the company has lost more than $11.5 billion dollars in the past four years. Sprint also has over $20 billion in long term debt, much of which carries high interest rates.
I've stated that I think Sprint can turn things around, but we are not there yet. While the company did post its first yearly operating profit since 2006, the fourth quarter was the largest quarterly loss in several years. The expectations for 2012 have only gotten worse over time. Last September, analysts were expecting a 68 cent loss for the company this year. Current estimates call for a loss of $1.42. That is more than $4.2 billion dollars. 2013 estimates have also been getting worse, with current forecasts for a loss larger than the 2011 one as well. This company cannot continue to lose money forever. I've stated that I wouldn't be a true buyer of this name till we get below $1.75 or more, and I am standing by that statement.
Deckers Outdoor (DECK): The company known for the UGG brand of footwear could be in trouble with the unseasonably warm weather many areas of the US have seen recently. This winter, there has only been two or three days I have personally not wanted to leave the house (in the NYC area), as opposed to last year, where it was like 2 or three days each week. Temperatures have been warm, and UGGs accounted for about 90% of Deckers' revenues in the third quarter. That is not a very diversified business model, which could lead to a disappointment in quarterly earnings at some point this year.
Deckers will report this Thursday, so could this be the quarter where they disappoint? Possibly. When the company issued guidance for the fourth quarter after last quarter's results, they raised revenue expectations from 22% to 29%. However, Wall Street is currently expecting more than 31%, which leads some room for a miss. The company also took down EPS growth from 36% to 33% for the quarter, and analysts are expecting about 38% growth currently. Deckers' valuation isn't terrible, but any miss will probably cost this name 10 to 15 points in share price. I don't know if this company will miss this quarter, but I have a feeling that their overwhelming dependence on one brand will cost them at some point this year.
Sina Corp (SINA): The Chinese media and gaming company could be in some trouble this year if China decides to tighten its control on the internet space. Sina gets hit every time there is a mention that the identities of its microbloggers will need to be revealed. Sina has not reported its fourth quarter an 2011 earnings yet, but when it does, I'm expecting a report closer to the one we saw from Sohu (SOHU) than we saw from Baidu (BIDU).
When Sina was in the low $50s, I said buy under $50, and if you got into it when it traded down to $47, you recently made a killing. Sina rallied into the high $70s as part of the Facebook rally, but at this point the company seems overvalued. The company trades currently at 48 times expected 2012 earnings, which is a bit high for the sector. Despite revenue growth in the low 20s percentage wise, earnings for 2011 are expected to fall by more than 50% per share in the fourth quarter. Whether its an earnings miss or increased government regulation, expect Sina to take a hit at some point this year.
LinkedIn (LNKD): LinkedIn is on my list strictly for valuation purposes. We've seen plenty of hype over social media IPOs, and the bubble will eventually burst. LinkedIn ran up over $120 on its IPO day, and anyone who bought there got crushed immediately. This stock traded down to below $60, a 50% fall in just a matter of months.
LinkedIn has rallied recently, thanks to the Facebook IPO hype and a good earnings report. However, the valuation is just too rich for my liking. Even if the company does $1.00 in earnings this year (current estimates are for $0.62, but 90 days ago called for just $0.29), the stock is trading at over 90 times this year's earnings. That is too much in my opinion. I expect that when Facebook IPOs, there will be another social media rally, but expect the bubble to burst after this. This company needs to be perfect to maintain the valuation, just asked Groupon (GRPN) what happens when you miss.
Amazon (AMZN): Amazon has been hit after both of its last two earnings reports, but the stock rebounded after each fall. This year, I think we go lower. Amazon issued very weak guidance for Q1 when it reported last month, in addition to a huge miss for Q4. Amazon is just reliant on revenue growth that's not there currently. The company runs a low margin business and earnings per share have not been growing. Stock price has over the last few years, which has pulled the valuation to a very lofty level.
Before last quarter's results, analysts were expecting about $64 to $65 billion in revenues for Amazon this year. Expectations are now for less than $63, and they probably will continue lower. In terms of earnings per share, last year was supposed to be the year for a rebound, it didn't happen. 90 days ago, analysts expected over $2 in earnings this year, which would be up significantly from the $1.37 we saw in 2011. But now, expectations are for just $1.32, another yearly decline. Amazon cannot expect this valuation to stick if it keeps missing on either the top or bottom line.
I don't issue a lot of warnings articles like this, but there is the potential for each of these names to drop this year. Some of these names have serious issues, and their performance will be impacted at some point. I'm not recommending any specific trade on these names, that is up to you to decide. Just remember the risks and costs associated with any options plays or stock shorting you do. When trying to figure out how much you can possibly make, don't forget margin requirements, costs of shorting stock, and other associated costs. Your loss could be tremendously more than any potential gain.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.