The Old Maid Of Q3 Earnings

In equities, the headline indices were largely directionless last but there was a lot of action underneath the surface thanks to firms in the U.S. reporting Q3 earnings. On that note, the season has so far been unkind to your humble scribe; indeed it seems that I have managed to get myself stuck with nothing other than the old maid this quarter. There can be no better way to re-introduce the Mark to Market section than to report how yours truly was in front of the queue at the proctologist last week. The portfolio was thoroughly rear-ended by the calamity of Syntel Inc earnings (SYNT) . A 5% year-over-year decline in revenue, which was higher than the market expected, and a massive hit due to a $270M tax bill on repatriated cash, which led to a $2.58 loss per share, were parts of the ugly highlights. Bedpans overflowed quickly as the market pushed down the stock a cool 15% on Thursday, before continuing the drubbing with a “modest” 5.6% follow-through on Friday. Blow out the chart, and the extent of the pain endured in this stock is staggering. The share price has given back just over half of its post-crisis rally within the space of less than a month. I thought it was safe to buy this thing after the initial gap in the beginning of October, but the market has so far cut through my kevlar glove like a warm knife through butter.   

Just a flesh wound, right? 

Just a flesh wound, right? 

A couple of points about the “stock selection” method at this place are probably in order here. Firstly, I run a very aggressive quality on U.S. and European stocks. At the moment, the U.S. screen returns only 22 names out of the entire universe of stocks tracked by Bloomberg on U.S. exchanges. Syntel has been drifting in and out this screen recently, which is why the gap down earlier this year caught my eye. There is nothing better than to buy a solid firm after a washout. This brings us to the second point. Syntel has a very good fit with my dynamic valuation score. Based on its “historical” multiples and its recent spectacular fall from grace, this model is currently very bullish on the stock. For example, the swoon has pushed the trailing P/E to 7.6 that, by a mile, is a record low. Another interesting factoid is that the stock is trading 51% below its 40-week average, a level last tagged after the deluge in 1999. 

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