Shares of AutoZone Inc. (AZO) plunged after the auto parts retailer shocked Wall Street with this morning’s earnings report, particularly its weak same store sales. Compared with the year ago quarter, same store sales in the U.S. fell 0.8%. Over the same period, net sales increased a paltry 1.0% and net income rose just 1.3%.
When all was said and done, AutoZone posted earnings of $11.44 per share on $2.6 billion in revenue. The problem is that this was well below the consensus estimate of $11.66 EPS on $2.71 billion in revenue. So AutoZone missed earnings expectations by 1.9% and sales expectations by 4.1%.
With its disappointing earnings report, there are now rumblings that online competitors like Amazon.com Inc. (AMZN) have finally caught up to AutoZone. To add insult to injury, the analyst community cut their EPS estimates for the next several quarters. This suggests that AutoZone will continue to struggle through the end of the fiscal year.
No one likes to see one of their stocks lose so much of its value in a day. But the good news is that there is something you can do to protect yourself from unexpected volatility. Simply, before any of your stocks reports earnings, run it through Portfolio Grader. When it comes to stock analysis or portfolio analysis, Portfolio Grader is an incredibly powerful tool for individual investors. You can read all about Portfolio Grader here, but here’s how it works in a nutshell:
There are two critical characteristics at the center of my stock analysis. The first is strong fundamentals. By fundamentals, I mean sales growth, earnings growth and the like. Growing companies are companies that are healthy and thriving. They have smart leaders who know how to run and manage a smart business. If a company is struggling to sell its products or is spending more than it makes, it’s not a company that you want to own for growth.
The second characteristic I look for in any great stock is strong buying pressure. Think of this as "following the money." The more money that floods into a stock, the more momentum a stock has to rise. And there’s no doubt about it, we all like stocks that rise!
So when you plug AZO into Portfolio Grader, you’ll notice that the stock fails with an F-rating, which makes it an automatic sell. That’s due to a combination of nonexistant buying pressure (F Quantitative Grade) and lackluster fundamentals (C Fundamental Grade). Once the latest data have been entered into Portfolio Grader, I expect that its Fundamental Grade will fall further.
The bottom line is that running AZO through Portfolio Grader a few days ago could have saved shareholders a lot of heartburn. The flipside of this is that savvy investors can also use Portfolio Grader to research potential buying opportunities this earnings season. For example, you can click here to view the top-rated Specialty Retail stocks in Portfolio Grader right now.