Jim: Alright now, what
do you do with a stock that's down 17
points... 23%... in one day... in one
day's session?...
If the stock is
Nordson Corp. (NDSN),
which got polaxxed... just as I just
described... well, I think you've got to
sell... Sell, sell, sell!...
because it missed its quarter by 5
cents. The Street was looking for
98 cents of earnings per share, and NDSN
delivered 93 cents...
But, more importantly, its forecast for
the next quarter was 16% lower than the
Street was expecting... a
mid-point of 89 cents... The Street was
looking for $1.05.
But then, you're probably wondering...
and this is true Wall Street
knowledge... How does a 16% miss
in guidance at the company turn into a
23% decline in the stock? It seems
like reverse alchemy, doesn't it?
How is that right... for just 16 cents
of missed earnings next quarter... 5.3
million fewer dollars... to destroy $600
million worth of NDSN's value as a
company? Are we just like... have
we lost our minds on Wall Street?...
I mean, NDSN was a $2.4 billion company
before it reported... and now it's a
$1.8 billion company after?... And
then, after it went lower again
today?...
I'm telling you... that it wasn't wrong
at all...
I don't even believe the selling is
done. I think the company
has much lower to go.
. . . .
.
Now the proportions seem wrong to you,
don't they? Shouldn't a 16% miss mean a
16% haircut?... And not a 23% haircut,
plus the additional 3.8% today?...
I mean, didn't the CEO just tell us not
to worry on Erin's fabulous Street Signs
show this afternoon?...
Well the CEO may be right about the
company, but that's not what we care
about on Mad Money... We care about the
way the stock market works...
And it's not working for NDSN...
. . . .
.
As I see it, and I think the Street sees
it... When NDSN... and it's an
industrial company that makes products
used to dispense sealants, adhesives for
coatings for food, diapers, consumer
durables, housing, auto industry... When
they missed its quarter, they went from
a dependable growth company that
consistently beat earnings.... a growth
stock that all the momentum guys wanted
to own... to a stock that none of them
wanted to own. Instead of being the glue
for products like Depends, you now need
Depends if you own it...
In one day, the company seems to have
immediately lost all of its credibility
and the respect of its entire share
base, which is why I believe it fell 17
points on Friday, and why I think it's
got more to go... because it takes a
long time for the shareholder base to
change. The growth guys can't get out of
it all at once... you saw them hit it
again today... and I think NDSN will
have to be much lower, before it starts
appealing to value investors.
. . . .
.
Now, if you just look at what the
company emails are saying, you'd think
that everything was almost hunky-dory...
On the conference call, NDSN's
management was trying to do damage
control... like good politicians...
focusing on very strong performance from
two of our segments... and trying to
ignore everything that was bad.
Even the research doesn't seem to
indicate any real problems with the
company. You have to read between the
lines to see how a 5 cent earnings miss
and 15% lower guidance can be such a
disaster... This is a company where 22%
of sales are housing-related... read,
"miserable"... and 7% is auto-related...
read, "nastola"... and the auto part SUV
(i.e., large sport utility vehicles
which are steadily declining in sales)
which is now SVU (i.e., referring to
NBC's "Special Victim's Unit)... And the
results for its advanced tech segment,
which serves the electronics industry,
and was supposed to be a key driver of
NDSN's earnings growth?... They were
lower than expected too... although the
company put on a good face about this
division on Erin's show.
No one wants to own NDSN for
inconsistent earnings in one big
division... Uh uh... They were in it for
consistent, double-digit performance in
at least several divisions and at least
some positives in the others...
. . . .
.
Now this is an adhesive's company that's
been heavily dependent on a weak dollar
to compete overseas... Adhesives?... I
don't know. To me, they're a
commodity... I'm sure they think it's
proprietary, but that's how the Street
views it... And, if it's a question of
price, the strengthening dollar will
likely mean that NDSN sticks to the
bottom and can't bounce back...
But, to really understand the scope of
this catastrophe, I think you have to
look at the context of the whole year...
NDSN took its guidance up big when it
reported the quarter before this one...
So, when it missed earnings and guided
down big on Friday, that utterly
destroyed management's credibility, and
killed the reason for the stock's whole
advance...
NDSN is one of these companies that you
thought had expanded into the rest of
the world, so it seemed less vulnerable
to the U.S. economy... but like a bunch
of other industrial companies, including
many we've liked... although I never
understood the big NDSN growth story...
it saw a dramatic slowing in Europe that
nobody, especially not management, saw
coming...
Oh boy, the analysts were caught
blindsided here... they were
flabbergasted... and now they're
abandoning ship, as though it's the
Titanic, if not the Hindenburg... with
no DiCaprios among them...
. . . .
.
Now, like I said before, I believe NDSN
is going to keep going down, because it
takes a long time to change the
shareholder base...
Before this abomination of a quarter of
horrific guidance, NDSN's shareholder
base was primarily industrial growth
buyers... people who wanted to believe
they could still own industrials that
had moved aggressively overseas... The
company had beaten its expectations so
consistently that its shareholders were
lulled into thinking it was a global
growth story/lovey blanket...
. . . .
.
Suddenly, when it missed the numbers
last week, it became a global mis-growth
story, and you can't use any of the
metrics that had given it such appeal to
the growth momentum players to judge the
stock anymore. They don't want to touch
it now... and, at these prices, there's
really no one who would...
NDSN is a hot potato... going from
growth to value... and, from my
experience, that trajectory is
vicious!...
It could take as long as 18 months for
the shareholder base to change from
growth to value... and, through all that
time, the stock will likely continue to
get hammered. Over the last six months,
the stock is still up 3.8%, so this big
decline has just taken NDSN back where
it was at the beginning of its run...
but I think it needs to be lower than
that because, now that the run is over,
none of the momentum players who were
buying it will have any interest in
owning the stock at all.
There's typically a vast chasm between
what growth and momentum players are
willing to pay for a stock... and what
the value guys are now willing to pay.
NDSN was trading at 17x forward earnings
before it got its head cut off... Now
it's trading at 14x forward earnings,
and that's still not low enough...
If it got a traditional cyclical
valuation, say like
Caterpillar Inc. (CAT)...
which is a darn good company... you get
an 11x multiple for CAT... which leads
to a $40.59 share price... That's 12
points below the current price. And
that's where I think NDSN is going...
A good company but, in my opinion, the
bottom line...
