GM Kills $10 Million Facebook Ad Campaign Because It Didn't Work
JCPenney's Ron Johnson: 'Customers Don't Get Our Pricing Strategy'Unless it is going to announce it had a secret division that produced cigarettes wrapped in asbestos, I am not sure what else is looming on the news front. All this makes it hard to be bullish on the stock, which may help explain why we have seen analysts back away from the shares this year.
However, I think it is worth discussing the concept of the market being a discounting mechanism. If you aren't familiar with this term, it simply suggests that people are forward looking and make decisions based on what they expect to happen. If investors believe a stock is going to rally next month they don't wait until then to buy, they buy now.
For example, suppose a company has a new product coming to market and there is some excitement that this will invigorate the stock. You may see the stock run up ahead of the product release but then show a bit of a dip on the actual event. If you have seen this happen first hand, you may have heard this described as a "buy on the rumor sell on the news" situation.
The same "discounting" can happen on the downside when it comes to expectations for bad news. Investors and analysts expect trouble so they look to get out before the news hits, or gets even worse. This is sometimes described as "pricing it in."
I must admit that I was being a bit facetious about the possibility of no more bad news being out there. There can always be more disappointments and an earnings delay combined with a SEC probe is far (far!) from being bullish news. However, the stock isn't showing much of a dip today, at least relative to what we have seen this year.
The relatively small drop so far today doesn't mean the stock can't go down more over the coming days and weeks. In fact, it would make sense to expect some back-and-forth over the near-term as last night's announcement is digested and investors wait to see what comes of the probe and earnings report.
From my perspective though, the longer-term view still offers a bright spot in that the stock is still holding well above its July low. That doesn't mean the road ahead will be easy though. At some point, Dell will need to find a way to woo the Street back and that can take time. It will also require some positive developments on the financial front. But for now, I think it may be worth at least considering the notion that some of the bad news may have already been factored in.
Nick Perry is an analyst with Schaeffer's Investment Research.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 1 of 1)
11-16-2006 @ 3:29PM
nomadicalloy said...
I think you are right. Dell is hiring people and they are spending more money on customer experience.
11-16-2006 @ 4:21PM
sleepy said...
The problem is that we haven't had the bad news yet. Sure, the restatement won't have much effect on revenue and earnings and I bet revenue and earnings is all you'll see in the press release that they pass off as an earnings announcement. The full SEC approved restatement could be the final blow to the already hollow balance sheet.
New investments in "improving the customer experience" can capitalize expenses for a limited time ("training", "set-up", "roll-out" etc) making earnings look better. But don't kid yourselves, those are new, added ongoing expenses that reduce profit.
Dell is so big, it can't grow very fast. So you're looking at a downside insolvency abyss, and an upside slow recovery.
Wait for two full, unqualified earnings releases before buying Dell. You may wait forever.