Ashland (ASH) slipped from a Zacks Rank #3 (Hold) to a Zacks Rank #5 (Strong Sell) back on November 8. It has not seen any increases and is now the Bear of the Day
Hit and Miss Pattern on Earnings
Over the last 12 months, Ashland has had four earnings reports and two reports were beats and the other two were misses. When the rubber hits the road, though, the stock has fallen in session following earnings releases three out of those four times.
This pattern of hits and misses are not what most investors want to see.
Ashland is a specialty chemicals company. The company operates through four segments: Ashland Specialty Ingredients, Ashland Water Technologies, Ashland Performance Materials, and Ashland Consumer Markets. The company was founded in 1924 and is headquartered in Covington, Kentucky.
Estimates Moving Lower
Estimates for ASH have been falling all year. Back in January of this year, the Zacks Consensus Estimate was at $8.95 and it was $7.65 in July and is now down to $6.95.
The same can be said of 2014 Estimates which moved from $9.65 in January, held at $7.85 in July of this year and have since crawled down to $7.74. Valuation
Falling earnings usually leads to a lower stock price. The lower stock price will also end up seeing lower valuation multiples. ASH is seeing all of major multiples come in below their industry averages. Notably, the 13.5x forward PE multiple is lower than the 16.7x industry average, but not that much. The price to book of 1.6x is dramatically lower than the 3.7x average and the company is trading at just 0.9x sales, which is light of the 1.3x industry average.
The price and consensus chart shows how earnings estimates and changes to them impact stock prices. Most of the time, a stock will follow its estimates, but knowing when to bail out of a stocks isn't always that apparent. Despite the falling estimates, the stock is grinding higher, although it has dramatically underperformed the broader market. Still, investors should look for stocks that are seeing earnings growth instead of earnings decelerations.
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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- Basic Materials Industry