Earnings season is always guaranteed to bring a few rude shocks. Some can be anticipated, kind of like parking your car on a train track and waiting to see what comes along.
Others are harder to see coming, but offer a lot more opportunity.
I'll leave it to you, reader, to decide which is which:
FlexiGroup Limited (ASX: FXL) – last traded at $2.51, down 35% for the year
The sheer scope of its fall this year means FlexiGroup is pretty much guaranteed to be characterised as a loser this earnings season. Three seasoned executives, CEO Tarek Robbiati, Chairman Chris Beare and non-executive director Anne Ward have resigned in recent weeks which undoubtedly has investors worried.
Flexi also gave 2016 guidance which was somewhat below market expectations – the company is expecting to make $92-94m after tax in 2016, up from $90.1m in 2015.
Ironically, FlexiGroup hasn't even released its full-year 2015 report yet and I am expecting that to be a decent result. Departure of a good chunk of the management team understandably causes investors to be concerned but the truth is FlexiGroup looks in much better shape than many other companies trading on a similar Price to Earnings (P/E) multiple.
I think FlexiGroup has fallen as low as it will go in the absence of any further bad news.
WHITEHAVEN COAL LIMITED (ASX: WHC) – last traded at $1.06, down 42% for the year
Whitehaven Coal's share price joined FlexiGroup in a rebound this morning, but I think the enthusiasm is misplaced.
As I noted in the company's report yesterday, the average price Whitehaven received for its coal fell by 7% in Australian dollar terms – and that's despite coal sales being made in US dollars which should have boosted profits. Whitehaven was also unable to expand its margins substantially to gain any ground on falling prices and the business case remains uncertain looking forward.
Buying Whitehaven Coal now requires a bullish outlook on the coal market in the near-to-medium term and, as I don't have one, I'm not a buyer at today's prices.
Computershare Limited (ASX: CPU) – last traded at $9.98, down 21% for the year
Last but not least, Computershare took a dive this week after its full-year profit and revenue fell on currency movements. A strengthening US dollar has made life uncomfortable for shareholders as international revenues are falling in US-dollar terms.
With its recent fall, Computershare trades on a Price to Earnings (P/E) ratio of around 12 which certainly looks reasonable given the nature of the company and its potential for growth. However, I find its services difficult to use and I'm of the opinion it is vulnerable to being edged out of its position by competitors over time.
Combining this with the potential for further currency pain as the US dollar strengthens, and I think Computershare could fall further in the near future.
