Question:
Titanium Metal Corps (TIE) reported earnings of 0.05 vs. 0.11 expected. Before the announcement, it was kind of trading sideways. In my opinion, it should have crashed. Any idea about why the price is holding up?
Jose from Confounded town
Answer:
Jose, the first thing you need to understand is that logic is not part of a stock’s movement, at least not generally so. Stock movement is subject to so much more than the actuality of its financials. TIE is no exception.
Looking at TIE in the month of August, it is clear that the price has not collapsed, but it has dropped steadily. Since the release of its quarterly financial report on August 4th, the stock price has fallen from $8.87 per share to around $8 per share today. On a percentage basis, the 10% drop in price is not that significant in these times of commodity volatility. When you read the financial report, there are clues as to why the price has not collapsed, although at first glance, the report seems to warrant concern.
Net sales were $409.1 million for the first half of 2009 compared to net sales of $591.0 million for the first half of 2008. The 31% decrease in net sales was principally the result of lower average selling prices and reduced volumes in the first half of 2009 compared to the same period in 2008.
However, when you read the report a bit more closely, things pop out that speak to the “staying power” of the stock. Below are two examples.
- We are the only producer with major titanium production facilities in both the United States and Europe, the world’s principal markets for titanium.
- Through careful management of production rates and costs in the current challenging economic environment, as well as conservative capital investment, we continue to maintain positive cash flows and a strong balance sheet, including $106.6 million of cash, borrowing availability under our bank credit agreements of approximately $217.5 million and no bank debt as of June 30, 2009
As well, when considering the current price, keep in mind how the dollar affects companies with strong foreign sales… As the U.S. dollar strengthened versus the euro and the British pound in the 2009 period compared to the 2008 period, our operating results were negatively impacted.
Finally, TIE traded around $35 just before our recession began in December 2007. Many traders (and investors) might see TIE as a bargain today, since it is a viable company with a viable product, and the coming recovery will send the price up again.
Trade in the day; invest in your life …
