Why Kraton Performance Polymers Inc's Shares Plunged 15% Today

By Travis HoiumMarketsFool.com

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What happened

Shares of engineered-chemical company Kraton Performance Polymers Inc (NYSE: KRA) fell as much as 15.5% today after an earnings report that missed the mark. As of 12:20 p.m. EDT shares were still down 15.2%.

So what

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Revenue jumped 68.8%, to $454.1 million, in the third quarter of 2016, and net income nearly doubled, to $15.6 million. On an adjusted basis, earnings were $0.63 per share, which still fell short of the $0.70 in earnings per share expected by Wall Street.

Kraton is being helped on the top line by the acquisition of Arizona Chemical Holdings earlier this year, but it hasn't yet realized all of the expected cost synergies. That is part of the reason for the disappointing bottom line, which is the focus of investors today.

Now what

Missing estimates can often lead to a short-term drop in a stock, but if we take a step back, we see there's a lot to like about Kraton's business. Volume is on the rise, particularly in the polymer segment, which was up 6.1% in the quarter. And from a valuation perspective, shares are trading at only 7.8 times 2017 earnings estimates. There's a lot for long-term shareholders to like,and today's sell-off looks overdone given the strong profits existing in the business.

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Travis Hoium has no position in any stocks mentioned. 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.