Revenue growth is an important metric for investors and analysts alike. In penny stocks growing revenues can mean very little if that growth falls below expectations. And sometimes missing expectations can be just as bad as shrinking sales.
For example, take a look at Primo Water (PRMW)
This is a company that would appear to be headed in the right direction if you took a superficial look at their last earnings report. But thats not the case at all. In fact, the bottled water provider is in big trouble.
Heres the thing
If you just glanced at Primos second quarter results, youd see year over year revenue growth of 70%. And youd probably notice how the company expanded to an impressive-sounding 1,300 locations. Or, you may even get excited about the development of a new carbonated beverage system.
But unfortunately for PRMW shareholders, its all just a smokescreen.
What you dont see in the earnings report is how the companys $20 million in revenues fell far short of the expected $25 million. Or worse, how PRMW posted a loss of $0.10 a share, a huge disappointment analysts expected the company to post a profit of $0.05 per share.
Are you still excited about this company?
Wait, theres more
Not only are PRMWs revenue and earnings well below expectations, they also lowered guidance.
Management now expects third quarter revenues and earnings to come in well below initial projections. And, they expect fourth quarter numbers to fall below expectations as well. Oh, and one more thing they think 2012 earnings might also come in a little short.
Wow. Thats quite the trifecta of bad news. Why would anyone want to own shares in a company after news like that?
Turns out, they dont.
Prior to the earnings release, PRMW was trading for around $14 a share. Two days after the release, the share price hit a low of $4.70. Nows that a plunge of epic proportions.
Investors unfortunate enough to hold on to PRMW shares saw a two-day loss of over 60%. And the future doesnt exactly look promising either.
Thats not to say that the company cant turn it around. But after a huge disappointment with revenues and earnings, and on the cusp of a slowing economy, a quick rebound is nothing more than pipedream. If youre looking for a turnaround play, this company isnt a primo choice.
Yours in profit,
Category: Penny Stocks On The Move