The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

01 June 2007

Sagacious or merely sequacious?

One reader and investor wonders...
Hello David,

Why the run up in JCG before the earnings announcement? Mind you, since I have a significant position in JCG, I’m not complaining.

Well, by now my answer is moot, as the company since has reported its earnings, and the stock is higher yet. Always keep in mind that different constituencies gain primacy at different times: traders, speculators, or investors (regular readers will recall my denotation as the investor's time frame), in addition to the different types of each class of investor - buy or sell side, fund or pension, etc - that each has its own individual objectives, etc.

Based on the high volume breakout that occurred today, I suspect that someone (or someones) caught wind of the positive earnings report, and purchased on pure speculation. (Even knowing the news does not guarantee the market's reaction to that news item.) Too, I suggest today's activity (+$3.20 to $44.87 on volume that is 376% of its daily average) was powered by traders purchasing the high volume breakout. Hmm, that seems kindasorta recursive, eh? When is the breakout? What price represents the breakout? How much volume signifies high volume? Sure, we have the closing numbers now, but what about all those investors who purchased during the day, during the breakout in process real time -- what did they know, and when?

[click on chart to enlarge]

"Clothing retailer, J. Crew Group/JCG, posted a more-than-tripling of Q1 profit Thursday on strong sales and high margins. The company's shares climbed 7.7% to close at $44.87 and then tacked on another 4.2% to reach $46.75 in after-hours trading. Q1 net income came in at $24.6 million ($0.39/share), up from $4.4 million ($0.12) in the year-ago quarter. Total revenue surged 24% to $297.3 million on a 13% rise in same-store sales. (After adjusting for a shift in the retail calendar, comps were up 8%.) Analysts were expecting $0.30 EPS on sales of $271 million. Gross margin increased to 46.6% of revenue from 45.5% last year. J. Crew is forecasting same-store sales growth in the mid-single digits. The company has raised its full-year EPS guidance to the $1.37-1.41 range, up from $1.27-1.31. Analysts had been expecting $1.32. J. Crew also forecast Q2 EPS of $0.26-0.28, in line with Street forecasts of $0.28. The company has beat expectations in every quarter since its IPO last June."
Tomorrow is another day. A gloriously bright future beckons for this company, its stock, and its investors; i.e., us. Congratulations to the three of you :-) who followed my lead, and purchased shares of JCG for your portfolios. This price move today is only the beginning; the best is yet to come.

Full Disclosure: Long the shares of J Crew Group/JCG

-- David M Gordon / The Deipnosophist

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