🍨 Daily Scoop: Back to the Green - Trade Stocks

🍨 Daily Scoop: Back to the Green

By Fri, Dec 6, 2019

Hey Scoopers,

The stock market clawed its way back to the green, after two days of horrendous red arrows.

Beyond the overall market, the board of directors of an online travel agency booted the CEO and CFO out on the same day, and financial analysts cheered them out the door. At the same time, quite a few financial analysts turned their back on one growth stocks and reduced their price targets, sending investors to run for the hills.

Oh, and by the way, we have an update from the delivery war — more on that in the “Water Cooler” section.

Also, don’t forget to scroll down to the “Overall Market,” “What’s Up?” and “What’s Down?” sections to read more.

Market Recap

    • U.S. markets: All three indices finished Wednesday in the green with the S&P 500 leading the pack by more than 0.6% daily gain. Scroll to the “Overall Market” section to learn more.
    • Cryptocurrency: Bitcoin’s price is hovering slightly above $7,000 mark.

MARKETS

OVERALL MARKET

Nothing major caused the stock market’s recovery.

All three indices finished Wednesday in the green. Energy, Healthcare, and Utility sectors led the market. And, the excitement crept into other sectors and all other sectors also finished in the green.

So, what happened?

Nothing! There was no good reason to justify the upward movement. There were even reasons for worry a bit. The private payroll growth rate was quite lower than expected in November. Maybe, and that’s a guess, people got excited about lower prices after a few days of downward movements and started buying things.

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MWHAT’S UP

Bye Bye, CEO, and CFO…

So, what happened?

Shares of Expedia (Ticker: EXPE) were up more than 6% on Wednesday. And guess what? The company’s CEO and CFO got booted out after a disagreement with the board, and investors cheered them out the door. Ouch!

The board and the CEO and CFO disagreed about the direction of the company, and the competitive threat from Google has cost Expedia quite a lot in online traffic. When you are an online travel agency, you can’t have problems with your online traffic.

Financial analysts applauded and approved the board’s decisions. And, investors followed suit. Putting the excitement aside, change of leadership is always a big event in a company. Investors are cheering, but don’t expect Expedia to go back to its old glory days. The path to growth is going to be bumpy, to say the least.

WHAT’S DOWN

Financial analysts turned their back for no reason.

So, what happened?

Shares of WorkDay (Ticker: WDAY) were down more than 4% on Wednesday. The decline came after quite a few financial analysts downgraded their price targets for the company, sending investors to run for the hills. The stock lost enough of its value to leave its typical overvalued range and it is now hovering at a relatively fair valuation. Of course, as is the case for the so-called growth stocks, there are no earnings to value the stock accordingly. However, judging based on historical price to sales ratio, the stock is in a fair share price range.

The company announced its quarterly earnings report a few days later than expected, and continued to perform well, growing revenue and non-GAAP earnings. What scared analysts was the 21% subscription revenue forecast for the next year. Because the management didn’t explain any reason for the slightly lower revenue growth forecast in 2020, analysts concluded the stock price target is lower.

Shhhhh … sharing a secret with you …

These types of analysis by financial analysts make us laugh. One analyst reduced his price target for just a few percentages lower revenue forecast in 2020, and suddenly all the other analysts followed him. If it was so easy to predict the stock price that accurately, how come there are so many differences in opinions and price targets. We tend to ignore these annoying knee-jerk reactions by financial analysts.

WATER COOLER

What does that mean?

A few weeks ago, we told you about the damping mood at GrubHub (Ticker: GRUB). The company’s stock plummeted rather sharply on a lower growth forecast. Another food delivery company was getting ready to go public in 2019, but things are turning sour quickly for that IPO. Postmates is the 4th largest food delivery company in the U.S. that is now struggling to grow and reportedly canceling its IPO. Ask us why?

The company’s major investor is SoftBank. Remember WeWork had to cancel its IPO? Well, WeWork is also funded by SoftBank. The chances are other investors don’t want to be associated with a SoftBank-funded company. And, Postmatess needs money to grow, because it doesn’t make money itself. That’s the first reason.

The second reason is that food delivery isn’t cheap. Restaurants have small margins and don’t have too much money to spend on delivery platforms. And, an actual human has to get paid a fair salary to go pick your food up and bring it to you. That’s all cost, and there is not much money left to be made by food delivery platforms. Especially if there are a few of them, and they keep underpricing each other to grow their users.

In the end, wars are never good. And, the delivery war is no exemption.

About the Author

Brought to you by Hoda Mehr, Editor at Trade Stocks, CEO and Co-founder of Stock Card and the host of Renegade Investors podcast. She runs a community of 8,000 stock market investors and manages Stock Card's successful flagship portfolio, Roll with Our CEO, on Stock Card Portfolio Store. Hoda is an Economist with an MBA from Concordia, John Molson School of Business. She applies behavioral economics, data journalism and storytelling to all aspects of her work. Subscribe for free here: Stockcard.io