August 05, 2006

Why Did Crox, Inc Get Clobbered?

posted by MR WAVETHEORY at 8/05/2006 12:32:00 AM
Crox delivered a great quarter by all measures coming in at $.39 vs $.22 estimate and top line of $85.6 million vs $57.0 million. So, why did the stock tank today to close at $27.41 (-1.59)? The stock opened high at $30.31, spiking to $30.75, and closing at the bottom of the range for the day.

Why did Crox get clobbered?
The high multiple may have been the reason, or maybe the guidance - revenues of $87.0-$89.0 million and EPS of $.38-.40 - which would merely be in line with the most recent quarter. According to the company,

"For the third quarter ending September 30, 2006, the Company currently anticipates total revenues to be in the range of $87.0 to $90.0 million and projects its net income per diluted share to range from $0.38 to $0.40, including share-based compensation expense."

For a high multiple stock like Crocs, which trades at 27x forward earnings vs an industry average of 18x, Crocs needs to continue delivering significant upside to keep the momentum going. At $27.41, you may be better off picking up a pair of Crocs Athens , Crocs Sandal, Jibbitz, or Crocs Prima at for $29.99.

Mr Wave Theory

August 04, 2006

Cryptologic's Cryptic Quarter (Nasdaq CRYP)

posted by MR WAVETHEORY at 8/04/2006 08:42:00 PM
Based in Toronto, Ontario, Cryptologic (CRYP) provides software that powers Internet poker sites like Betfair. Recently, the company announced earnings that came out at $.59 vs $.49 estimate or roughly $.10 ahead. The top line was $30.4 million and as the company put it, "well ahead of the company's estimate of $26.4 to $26.7 million."

However, the guidance was notably weaker for the current quarter which seems very odd:

"For Q3 2006, CryptoLogic forecasts revenue of $26.5-$27.0 million and earnings of $6.6-$7.0 million, or $0.48-$0.51 per diluted share. These estimates reflect the fact that Q3 is typically the softest quarter for Internet gaming, as players spend less time online during summer months. Also, licensees' poker room activity may decline between July 28 and August 10 when serious players are focused on the main event of the game's premier land-based tournament, the World Series of Poker."

One often wonders how this little earnings beating quarter could be followed by such a notably weaker follow-on act. It is quite clear why when the careful reader digs deeper into the press release:

"The increases in both Q2 2006 and year-to-date results over the comparable periods of 2005 are primarily attributable to revenue from our exit agreement with Betfair, higher revenue from our marketing support services, and increased advertising revenue associated with our gaming information portal."

Betfair is a significant customer of Cryptologic and Betfair will be leaving fairly soon:

"As announced in August 2005, Betfair, a poker software licensee, is expected to leave the central poker room before January 2007. We are awaiting notice of their ultimate departure date. WagerLogic is receiving fees from Betfair such that CryptoLogic's annual results for 2006 are not expected to be adversely affected."

From what I gather, Betfair appears to have made a fairly substantial payment to Cryptologic - shall we say "breakup fee" to terminate the relationship. Cryptologic does not mention the amount, but judging from the weak guidance for this upcoming quarter, I surmise the entire upside for the current quarter was due to the Betfair bounty. I doubt this shot in the arm will do much for Cryptologic.

As with unhappy marriages, it seems like one (aka Betfair) can always buy ourselves out of an unhappy arrangement.

Mr Wave Theory

Apple Computer Inc In Options Trouble

posted by MR WAVETHEORY at 8/04/2006 02:47:00 AM
Options. Options. Options. They are the bane of the CEO's existence these days. What started out as a harmless one paragraph mention in Apple's Third Quarter Financial Statement has turned into a full-on fiasco for Apple.

Apple briefly mentioned the existence of a options probe gingerly in its earnings release on July 19th and the market seemingly shrugged it off because the company handily beat estimates by ten cents (54 c vs 44 c). Apple warned:

"As previously announced, an internal investigation discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001. A special committee of Appleā€™s outside directors has hired independent counsel to perform an investigation and the Company has informed the SEC. At this time, based upon the irregularities identified to date, management does not anticipate any material adjustment to the financial results included in this earnings release. However, if additional irregularities are identified by the independent investigation, a material adjustment to the financial information could be required. "

"Additional irregularities" apparently have indeed been found and the stock options ghost is back to haunt Apple. The company just announced that there will be material adjustments to its earnings due to irregularities in options accounting and delays in its quarterly filings and the stock is down.

If there is one lesson to be learned from recent events, avoid stocks with options irregularities. Apple is down a few points from its closing price, now trading at 65 (-4.59). Depending on the extent of the adjustment, it is quite possible that Apple will trade down into the low $60s or perhaps the mid $50s which is where it traded prior to earnings. After all, Apple ran up post earnings largely because it beat third quarter earnings estimates based on an earnings report which we now know may be flawed after all, while coming in lighter than expected on the top line.

Mr Wave Theory

August 03, 2006

Imperial Sugar Beats Earnings by $.38

posted by MR WAVETHEORY at 8/03/2006 02:17:00 AM
Imperial Sugar (IPSU) is a sugar refiner that reported earnings of $1.26 beating estimates by of $.88 by $.38. The stock closed at $27.36 (+3.53). The interesting thing about Imperial Sugar's report is that the company sees significant earnings momentum in the coming quarters.

According to the company,

"The higher prices and margins are a result of favorable domestic sugar market conditions which was driven by a tight domestic supply caused by a smaller domestic sugarbeet crop and the impact of last year's Gulf Coast hurricanes on the cane sugar industry."

Furthermore, the company reiterated continued strength in the sugar market.

"We have been able to sustain a margin that is well above historical levels despite some softening in spot prices in our industrial business line from the very high levels that existed earlier in the year. Accordingly, while the industrial price ramp has largely leveled off, we continue to stand by our earlier comments that we expect industrial prices and margins for the latter half of the fiscal year will be higher than those achieved during the first six months."

The report was spectacular. Shares traded as high as $36.76 earlier in the year and the stock looks poised to break out to new highs. Lehman Brothers owns 29% of the outstanding shares and has been adding recently.

Mr Wave Theory

August 01, 2006

DXP Enterprises Bounces Big

posted by MR WAVETHEORY at 8/01/2006 05:28:00 AM
DXP Enterprises (DXPE) is a stock that has taken quite a beating in the last 2 months. It's had a lot of ups and downs. It traded as low as $12.21 a year ago and as high as $59.24 a few months back. Today, it is $36.31 after surging since the latest earnings announcement. So, why the fuss?

According to Hoover's, DXPE is in the business of the following:

DXP Enterprises, Inc. distributes maintenance, repair, and operating (MRO) products, equipment, and service to industrial customers in the United States. It operates in two segments, MRO and Electrical Contractor. MRO Segment provides maintenance, repair, and operating products; and equipment and integrated services, including engineering and logistics capabilities, to industrial customers.

Earnings have grown 99% year on year and revenues roughly 53.50%. This will be an interesting name to watch. The float is a mere 2.82 million shares and roughly 585,343 shares change hands every day.

Mr Wave Theory