Bad 10-q earings...I dont understand why this stock is going up

[rookietr8r]

Fairly new to trading, i typically only trade on the industry I am in, but on public info(Beer and Beverage). Yesterday, I shorted Craft Brewer's Alliance "HOOK" becuase based on my industry experience I knew that cost of doing business for Crafts is going way up. They have been having price wars between brewers. Plus "HOOK" core brands are in decline, Redhook and Widmer. Craft is all about being fresh and new, and these brands, which are much more mature then the rest of crat are consistently loosing syndicated data market share to newer and smaller local brewers.

My intuition turned out to be correct. They reported a small operating profit, less than a penny earnings per share. Sales and Marketings costs shot through the roof. Sales were up, not at the expected growth rate though, and only becuase they acquired a new brand, Kona, in September.

Despite this, the stock went up 8% today. I don't understand why? No news reports or analysts reports. They are trading a rediculously high p/e compared to industry competitors and they are not growing. My only thought is that investors want exposure to the growing craft industry, but dont realize that CBA brands are in decline.

Any insight would really help this rookie understand how the market works.

 

[wackypete2]

This is why:

Significant financial highlights for the quarter ended March 31, 2011 include:

Net revenues increased $4.8 million, or 18 percent, to $32.3 million compared with the first quarter of 2010

Shipments increased by 19,200 barrels to 147,900

Depletion growth for the first quarter of 2011 was seven percent
Gross profit percentage increased 370 basis points

Selling, general and administrative expenses increased $3.1 million to $9.3 million, reflecting increased sales and marketing efforts

Capital expenditures were $2.0 million as the Company continued to make strategic investments in systems and infrastructure

“Top-line growth was ahead of our expectations, reflecting early successes on the sales and execution fronts. We are excited about our prospects as we move further into the delivery of our new beers and brands, giving our customers expanded opportunities to enjoy our beers. The initial returns for these new beers and packages has been positive, but we recognize that we must continue to build on our achievements,” said Terry Michaelson, CBA’s CEO. “While we remain resolutely committed to increasing our profitability for the year, our bottom line performance was in line with our expectations and reflective of our aggressive investment against our sales and marketing initiatives.

You are only looking at costs and not the whole picture. Revenues are way up and outlook is good for future growth.

FYI, trying to trade solely off info like this is extremely difficult. It's not always easy to interpret results.

Peter

 

[wackypete2]

ADDED: There's always the possibility that the initial investor reaction to quarterly results is wrong. Happens enough that some traders prefer to fade the initial reaction, in this case sell AFTER the price shot up. I'm not making any recommendations here just letting you know what the possibilities are.

Good Luck!

Peter

 

[rookietr8r]

ADDED: There's always the possibility that the initial investor reaction to quarterly results is wrong. Happens enough that some traders prefer to fade the initial reaction, in this case sell AFTER the price shot up. I'm not making any recommendations here just letting you know what the possibilities are.

Good Luck!

Peter

I realize they had topline growth, but they merged with Kona in September. I would be pretty confident that none of the growth was organic and all due to the new acquisition. My analysis on the intangibles is that their core brands are in decline and in order to stay relevant with "trendy" craft drinker they would need to continue to acquire up-and -coming brands. That it mind, do they merit a p/e ratio 5x the bev industry avg? Or could these factors continue to be overlooked by investors since they are in such a high growth segment, craft beer. Or better said, when they hold the earnings call (tommorow) are things like this ever uncovered through analyst questions and is it unusual to see movement after the earnings call even though the market already reacted to numbers?

 

[rookietr8r]

I realize they had topline growth, but they merged with Kona in September. I would be pretty confident that none of the growth was organic and all due to the new acquisition. My analysis on the intangibles is that their core brands are in decline and in order to stay relevant with "trendy" craft drinker they would need to continue to acquire up-and -coming brands. That it mind, do they merit a p/e ratio 5x the bev industry avg? Or could these factors continue to be overlooked by investors since they are in such a high growth segment, craft beer. Or better said, when they hold the earnings call (tommorow) are things like this ever uncovered through analyst questions and is it unusual to see movement after the earnings call even though the market already reacted to numbers?

P.S thank you very much for responding.

 

[wackypete2]

I realize they had topline growth, but they merged with Kona in September. I would be pretty confident that none of the growth was organic and all due to the new acquisition. My analysis on the intangibles is that their core brands are in decline and in order to stay relevant with "trendy" craft drinker they would need to continue to acquire up-and -coming brands. That it mind, do they merit a p/e ratio 5x the bev industry avg? Or could these factors continue to be overlooked by investors since they are in such a high growth segment, craft beer. Or better said, when they hold the earnings call (tommorow) are things like this ever uncovered through analyst questions and is it unusual to see movement after the earnings call even though the market already reacted to numbers?

It's very likely that you'd see a similar opposite move after the earnings call, but nothing is for sure, so do what is necessary to protect your money. It's a good idea to find out what firms are following and rating the stock and what percentage of outstanding shares are institutionally owned. It's good information to know because if most of the shares are in the hands of small investors, who never have a good handle on information, then moves can usually be on the wrong side at first. Obviously you have industry knowledge and others only see what is shown to them.

Hope this helps,

Peter