Why FleetCor Technologies Stock Flopped Today

By Markets Fool.com


FleetCor pumps out the profits, but investors today think it has a leak. Image source: Getty Images.

Continue Reading Below

What happened

When gas card provider FleetCor (NYSE: FLT) reported Q3 earnings on Tuesday, it did everythingyou'd ordinarily hope a company reporting earnings would do. It reported better-than-expected revenue -- up 7% year over year to $484.4 million, whereas Wall Street had expected $482.8 million. It reported better-than-expected earnings per shareonthat revenue -- up 15% year over year at $1.92 pro forma, versus a Street consensus of $1.86. (Actual GAAP earnings were up 10% at $1.36 per share.)

But then investors sold off FleetCor stock in Wednesday trading.

So what

As of 3:00 p.m. EDT, FleetCor stock was down a good chunk of change -- about 11.3% from its pre-earnings closing price. So what were investors so upset about?

Continue Reading Below

My best guess is that guidance is to blame. Despite beating analyst estimates on both sales and earnings in Q3, FleetCor declined to guide investors to expect any higher earnings for the rest of the year than they were already expecting based on analyst estimates -- which is what you would have expected it to do if Q3's performance was sustainable, and Q4 was to build on that momentum.

Instead, with Wall Street predicting $6.86 pro forma for the year as a whole, FleetCor merely bracketed that number, saying it expects to earn between $6.82 and $6.90. Worse, FleetCor noted that revenues will probably come in between $1.81 billion and $1.83 billion. Both those numbers are below the consensus estimate of $1.85 billion.

Now what

Shifting our focus from the pro forma numbers that FleetCor emphasizes, and that Wall Street accepts at face value, we note that FleetCor says actual, unadjusted GAAP earnings this year will range between $4.94 and $5.02 per share. The stock currently costs less than $156 per share after today's sell-off. And so this still leaves FleetCor stock selling for a very rich multiple of more than 31 times reported earnings.

And that right there is where I think you'll find the problem. Growing earnings at 10% (GAAP) or even 15% (pro forma) simply isn't fast enough to justify the kind of earnings multiple that investors have been paying to own FleetCor stock. At these prices, merely "beating earnings" isn't enough to sustain the stock price -- FleetCor needed to beat those earnings with a stick. It failed to do so, and the stock's being punished as a result.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he currently ranks No. 333 out of more than 75,000 rated members.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.