Why Etsy, Babcock & Wilcox Enterprises, and American Eagle Outfitters Slumped Today

By Dan Caplinger Markets Fool.com

The stock market soared on Wednesday, sending major market benchmarks to new highs with gains of 1% to 2%. The Dow climbed above the 21,000 mark just weeks after reaching 20,000, and investors were extremely happy with the way that Tuesday night's presidential address to Congress went. Signs on the macroeconomic front are pointing toward the potential for accelerating growth, and that spurred interest in market sectors that will benefit most from rising interest rates.

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Yet some stocks failed to benefit from the broad-based rally, and Etsy (NASDAQ: ETSY), Babcock & Wilcox Enterprises (NYSE: BW), and American Eagle Outfitters (NYSE: AEO) were among the worst performers on the day. Below, we'll look more closely at these stocks to tell you why they did so poorly.

Etsy gets more aggressive

Shares of Etsy fell 12% after the craft marketplace website operator reported its fourth-quarter financials. Sales for the quarter were up 25% from the year-ago period, but Etsy's losses widened fivefold to $21.4 million. The company has worked hard to try to build up scale, launching its first global brand campaign and introducing Google Shopping through its website. Yet investors aren't certain that Etsy will be able to fend off competition from larger online retail giants, even with the introduction of global craft supplies market Etsy Studio and the revamping of its seller experience with a new dashboard. The big question going forward is whether Etsy's loss-producing investments in growing its own business will pay off with higher revenue and profit down the road. If it does, then bumps in the road like today's will look insignificant in hindsight.

Image source: Etsy.

Babcock & Wilcox lose power

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Babcock & Wilcox Enterprises stock plunged by more than a third on Wednesday in the wake of Tuesday afternoon's fourth-quarter financial report. The maker of power-generation equipment said that it suffered an adjusted loss of $1.60 per share, generating sales of just $380 million, down by nearly a quarter from year-ago levels. The company blamed lower activity in retrofits and fewer new-build work in the utility and environmental space for declines in the power segment, and even a nice boost in the industrial segment wasn't enough to offset the top-line impact from weakness elsewhere. Moreover, the renewable segment saw sales declines of more than half, and longer-than-expected project schedules led to a substantial loss from the segment for the period. Going forward, Babcock & Wilcox's sales guidance for $1.6 billion to $1.8 billion and earnings projections of $0.75 to $0.95 per share were disappointingly low, suggesting what appears to be a tough market environment for the company right now.

American Eagle sees weaker earnings

Finally, shares of American Eagle Outfitters fell 10%. The teen retailer reported a 1% drop in revenue that sent GAAP net income down by a third from year-ago levels. Even though adjusted earnings climbed after accounting for various one-time items, consolidated comparable sales were up only "slightly," suggesting a less-than-1% rise compared to better increases in 2015's fourth quarter. Yet what really seemed to disappoint shareholders was American Eagle's prediction for $0.15 to $0.17 per share in earnings, based on expectations that comparable-store sales will be at best flat and could fall by low-single-digit percentages. The news shows that at least for parts of the retail industry, a recovery hasn't yet materialized, and American Eagle will have to work harder in order to mount a sustainable turnaround for its business.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Etsy. The Motley Fool has a disclosure policy.