If you want proof that you can't take anything the media says (or implies) about a particular stock at face value, you don't have to look any further than the saga of the love triangle between Green Dot Corporation (NYSE:GDOT), Wal-Mart Stores, Inc. (NYSE:WMT), and American Express Company (NYSE:AXP).
Just when one would have thought things couldn't have gotten any worse for GDOT after the company revealed last July that its revenue was waning due to competition, the crushed stock was crushed again in October when it was announced that WMT and AXP were teaming up to offer prepaid debit cards in Wal-Mart stores. The July news thumped Green Dot shares to the tune of 60%, and the October news whacked it by 20%, just when it looked like it might be able to dig itself out of a hole.
Almost needless to say, the double-barreled blow was assumed by some (and presented by some of the financial media) to be the beginning of the end for GDOT. A funny thing happened on the way to Green Dot's funeral, however. The stock has rallied 83% since its October low, hit just a few days after the Wal-Mart/American Express partnership was unveiled.
The plunge and subsequent rebound isn't the interesting part of this story though. No, what's interesting is what so may were saying - what so many were certain of - that crushed the stock not once, but twice.
The July plunge from $23.32 to $9.06 was spurred by the company's lowered full-year earnings forecast, from a range of $1.65-$1.70 per share to $1.29-$1.32 per share. The Q2 miss didn't help either; GDOT earned $0.35 per share, versus expectations of $0.38. For the sake of comparison, that's a 60% plunge from the stock on only a 22% dip in the company's earnings outlook. Ten different analysts downgraded the stock - AFTER Green Dot shares had already plunged - following the news.
Shares started to mister a rebound shortly after that, and had fought their way all the way back to the $12.84 level by October when Wal-Mart dropped another bomb on GDOT and its shareholders. The world's largest retailer announced it was partnering up with American Express to offer a prepaid card service called Bluebird. Not only did it step on Green Dot's toes, but it outright stumbled into the company. About 60% of Green Dot's business had been driven by Wal-Mart, but with Wal-Mart now doing the same (and collecting more money each time it did), how much would Wal-Mart truly promote Green Dot when it could promote its own version of the same? Headlines like "As Bluebird Soars, Green Dot Remains In A Tailspin" and "Red Light For Green Dot Investors On Wal-Mart, Amex Threat" (both of which were real headlines) were the norm.
Since October, Green Dot shares have gained more than 80%, shocking, well, pretty much everyone. It's a far cry - a diametrical opposite in fact - from the majority opinion just a few months ago.
What happened? Here's the amazing part.... 2012's bottom line ended up being worse that the lowered guidance implied it would be; GDOT only earned $0.92 last year, well short of the projected $1.29-$1.32. But, forward-thinking as the market is, traders likely sensed Q1's beat was on the way. The company topped estimates of $0.37 by earnings $0.42 share. Revenue was up 9%, and profits were up 13%. And just so there's no confusion, the last-year numbers were pre-Bluebird figures, while Q1-2013's results were solid despite the competition of Bluebird being in place. In fact, Wal-Mart and American Express launched their card in October shortly after announcing it; it's had plenty of time to beat up on Green Dot.
Moral of the story? Just because someone thinks it or says it doesn't make it true. If you see value in a broken stock, go ahead and buy it.