American Vanguard (AVD) has been a Zacks Rank #5 (Strong Sell) for longer than any other current #5. It moved to a Rank #5 on March 4 of this year with the next oldest #5 being added on April 1. That is a long time without any increases to earnings estimates, and today it is the Bear of the Day.
AVD Was Not A Home Run
Here at Zacks I manage the Home Run Investor portfolio of stocks. I look for small cap stocks that have great upside potential and we have found a lot of big winners. I added American Vanguard to the portfolio back on November 27 of 2012. We subsequently sold the stock about six months later on February 27 for a loss of 5.36%. The idea behind Home Run Investors is to cut your losses early, before they become big losses. A year and a half later I am looking back and I see I avoided a substantial amount of pain.
American Vanguard is a chemical company that formulates chemicals for crops, human and animal protection. American Vanguard was founded in 1969 and is headquartered in Newport Beach, California.
The Most Recent Quarter
On the first of May, the company reported earnings for the March 2014 quarter. It was a beat of the Zacks Consensus Estimate by 4 cents of 133%. Right off the bat, you would think that is a great thing, but you need to dig a little deeper than just if a company beats estimates or not. The topline line was a major disappointment, coming in $10M below expectations or about 11% below the Zacks Consensus Estimate.
The real concern for investors was that on April 10 of this year the company guided Wall Street down due to elevated channel inventories. They said that revenues would be 33% lower than year ago levels and earnings would be break-even to a few cents per share for the quarter.
AVD Sees Estimates Moving Lower
The Zacks Consensus Estimate for 2014 for AVD has been sliding for just about a year now. The number was as higher as $2.16 in July of 2013 but since then we have only seen it move in one direction. By October it was down to $1.96 and it plunged to $1.52 in December. By March another 20 cents was shaved off the top and it has just about been cut in half since that time with the current estimate calling for EPS of $0.69. That is a big tumble.
The 2015 Zacks Consensus Estimate has also seen a significant drop, with estimates moving from $2.45 in February of this year to $1.50 in March and are now at $1.07.
Over the last year, AVD has seen its stock price move lower by about 50%. That might improve the valuation picture, but instead, this one seems to be rather rich still at this point. The reason for that is the continuous fall in earnings estimates. The stock trades at about 22x forward earnings, and that is a stiff premium to the 17x industry average considering the weak outlook. Other metrics like price to book and price to sales are below the industry average but likely not done falling.
The price and consensus chart is a very useful tool for investors. Developed here at Zacks, we show how earnings estimates have moved in relation to the stock price. Investors that were long this stock would need only to look at this chart to see how the future was going to turn out. Estimates turned around and headed lower and they have not yet stabilized, much less turned higher. Stocks like this, which have been beaten down severely offer investors great opportunity... the thing is you cannot try to catch this falling knife until the estimates start to move back higher again.
Follow Brian Bolan on twitter at @BBolan1
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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