Registered User
Joined: 12/6/2004
Posts: 48
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OK, time to get to work. I took a thumping a few days ago (see the SPNC thread) by foolishly holding a small cap stock through its quarterly earnings announcement. Lesson learned: no matter how pretty the chart looks, earnings news can result in sudden losses or gains.
Recently I've been reading academic journal articles about a different effect, the Post Earnings Announcement Drift (PEAD). Basically it has been observed in the markets that after a positive earnings surprise it can take 4 to 8 weeks for the market to fully adjust the stock price to account for a new level of earnings.
Today ENDP, a drug company, posted a pro-forma 52 cents per sh versus 44 cents expected, and upped its guidance for the year ahead to $2.20 per share. At 0.44 and yesterday's price of $25, that implies a P/E ratio of 14.2. With the new earnings guidance that P/E ratio works out to about $32. Also working in its favor is ENDP is in a good sector (pharma) given the slowing economy. P/E ratio is reasonable.
The chart shows that the slow downtrend is broken. OBV bottomed in mid-January and is turning up, and is above its own moving average. The 200-day moving average is just under $30. Since the company is outperforming expectations, I expect ENDP to move up to retest the 200 MA in the next several weeks. I bought near the bottom of today's candle -- it opened at $27 and quickly fell back to $26. The hot money closed the opening gap, and I figure that's a good place to step in. Stop loss around $23. Time stop 8 weeks.
And the best part is, they announced quarterly earnings this morning -- I don't have to worry about a bad earnings announcement for the next three months :-)
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Registered User
Joined: 12/7/2004
Posts: 393
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NOAB, Good catch on ENDP. I submitted a bid after your post but didn't fill. Good fortune, laphill
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Registered User
Joined: 12/7/2004
Posts: 393
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NOAB, finally bought some ENDP yesterday at $24. Looking for a nice bounce.
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