I have written many times about former high flyers that experience big drops and the dangers that lie therein. Playing momentum stocks is a dangerous game that could yield big profits, but also huge losses if you are holding the bag when the music stops. That is the case this morning for Motricity (MOTR), a stock that came public last June and has enjoyed a strong run. Should investors snap up these shares at lower prices?
According to Yahoo! Finance, the company provides mobile data solutions that enable wireless carriers to deliver mobile data services to their subscribers in the United States, the United Kingdom, the Netherlands, and Singapore. It offers a suite of hosted, managed service offerings, including mobile Web portal, messaging, and billing support and settlement.
Big Haircut
Unfortunately for the bulls, the stock is getting hammered after its fourth quarter results were weaker than expectations and its outlook also failed to meet the consensus. The company blamed weakness in the United States, but tried to assuage investors by saying that its international business is strong and only getting better. Of course this will fall on deaf ears as the stock gets taken to the woodshed today.
Should You Pick Up Shares Here?
The question now is whether or not investors will step in and buy shares on the cheap. I don’t think you should join them if they do because “cheap” is a relative term that doesn’t necessarily apply to Motricity. It is trading at about 27x this year’s estimate of 67 cents per share, and I expect that consensus to drop as analysts cut their numbers. This high of a p/e ratio is usually reserved for companies with strong earnings momentum, which the company is certainly not experiencing.
It will take some time for investors to gain back their confidence in the stock and you will likely underperform the market if you tie up your money holding this stock in the mean time. There are many other stocks out there with robust fundamentals that are worth looking into.
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