Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of specialty chemical company Balchem (Nasdaq: BCPC ) were getting hammered by Mr. Market today, falling as much as 19% in intraday trading after the company reported fourth-quarter results.
So what: OK, let's hit the facts here first. Rarely is it exciting when your company's results go nowhere, and that's exactly what happened to Balchem. Revenue clocked in at $69.7 million for the final quarter of the year, down ever so slightly from $69.8 million the prior year. On the bottom line, earnings per share stayed exactly the same YOY, notching $0.31 after registering the same amount in 2010.
Now, that might not have been so bad if the market had been expecting results to be flat, but Wall Street analysts had actually projected that earnings would increase to $0.36 as revenue ticked up to $77.4 million. Staying the same translates into a pretty considerable shortfall.
Now what: While the fourth quarter was no doubt disappointing for investors, I can't help but wonder whether today's sell-off was an overreaction. A single-day loss of nearly 20% would generally suggest to me that something had drastically impaired the business, and reading the company's earnings press release, I think that hardly seems like the case.
On the other hand, based on typical valuation multiples, Balchem's shares are not cheap. This suggests that investors are expecting the company to register considerable growth -- a promise that it's generally delivered on over the years. However, it also means that the market may be prone to freak out like this when there's a whiff that future growth won't live up to what's priced into the shares.
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