Are negative earnings ever ok?
The simple answer is: never. The complicated answer is: sometimes.
Horsehead Holdings Corp. (ZINC) produces zinc and zinc-related products in North America. Its 52-week low is $2.26. Tuesday the stock fell around 3% to just under $11. Last quarter revenues fell by ~64% (yoy) and ZINC reported a loss of ~$9.3 million (~35 million shares outstanding). This is clearly not good news, but why did ZINC rally to ~$11 from $2.26 in the face of these poor financial results?
Perhaps the silver-lining (or should I say zinc-lining) of the cloud revolves around some non-earnings related metrics. 1. a price-to-sales ratio of ~1.37 (ttm); 2. ~$2.23 of cash per share; 3. negligible long term debt. These metrics may support the return to robust profitability once the economy turns around. Before the collapse (i.e., 2007) ZINC earned roughly $2.50 a share. I am certainly not ready to go long this stock yet, but it will be on my watchlist for the next couple of quarters.
- ZINC announced a public offering of 6 million shares Tuesday.
- If the economy rebounds slowly, ZINC will be reporting negative earnings for a while.
- The shares have rallied significantly from their 52-week lows and a pullback may be in order.
- ZINC is a small-cap stock and the short-term price may be subject to "trading fluctuations"
Disclosure: As of today, I have no position in ZINC. Please collect your own data and come to your own conclusions.