Here are extracts from a couple of company press releases. Which one would prompt you to invest your money?
Press Release Number One
Today the Company reported that record net earnings rose 172 percent to $5.5 million, or $0.40 per diluted share, for the fiscal first quarter, compared to net earnings of $2.0 million, or $0.14 per diluted share, in the prior-year quarter.
“We are pleased to begin the year with a strong first quarter, with increased revenues across all product lines,” said the CEO. “Contributing to the quarter was … a 5 percent sales increase on top of a 93 percent sales increase in the same period last year. For the first quarter, EPS improvement was primarily due to higher sales volumes, a favorable product mix, and our continued success in enhancing operating efficiency and lowering our cost structure. As a result, the Company delivered record first-quarter sales and profits.”
Press Release Number Two
Today the Company reported that the net loss for the quarter improved to $2.7 million, or $0.15 per diluted share, versus the prior-year third quarter net loss of $10.5 million, or $0.58 per diluted share.
The CEO commented: “Unfortunately, overall demand remains weak… Industry wide sales declined further and we do not see a quick recovery. Because of the weak retail environment, we are now planning significantly lower sales to our dealers in order to better align dealer inventories with consumer demand. This action will negatively impact our revenue and profitability this fiscal year, but it is necessary given prevailing market conditions.”
Quite a difference. The first press release is really great news. The second one is from a company that appears to be in deep trouble. Press release one appears to be a really attractive investment compared to number two doesn’t it? But you know me well enough to know this is a trick question.
These are both press releases from the same company, Arctic Cat, the snowmobile manufacturer. The first press release was for the most recent quarter just ended. The second one is from January of 2009. The price difference is startling. In January of 2009, when the news was all gloomy, the stock was at $5. Today it’s at $55, up 1000%. Wow. But in order to make the 1000%, you had to invest when press release two was the news of the day.
It’s a very hard thing, to invest when the news is bad, and to sell when the news is good. But here is some hard evidence of the value of doing just that.