Around earnings time, stocks can be particularly volatile. Talk about big movers! After earnings, goeasy (TSX:GSY) stock jumped 12% the following day. The day after that, it’s only normal to see some profit taking, as the long-term average market returns are about 8%.
Similarly, Nuvei (TSX:NVEI) and Northland Power (TSX:NPI) moved big after earnings, but on the downside. They fell 14% and 12%, respectively, in what seemed like a knee-jerk reaction.
Let’s go over the underperformers first.
Why Nuvei stock declined 14%
In the first quarter (Q1), Nuvei delivered volume and revenue growth. Volume was up 45% to US$42.4 billion, including organic volume growth of 29% to US$37.80 based on constant currency. E-commerce represented 90% of the total volume. Revenue increased by 20% to US$256.5 million. Management even raised the low end of its prior guidance for its 2023 financial outlook.
I think investors did not like that the fintech company ultimately reported a net loss of US$8.3 million. The “culprit” is a one-time acquisition cost of a whopping US$20 million. On the bright side, the adjusted net income was US$64.5 million (down 7%). As well, it reported adjusted EBITDA earnings before interest, taxes, depreciation, and amortization), a cash flow proxy, of US$96.3 million (up 5%).
Nuvei has the potential to be a big winner, but investors will have to endure a wild ride. If you size your position appropriately, it could be a good holding for riskier investors seeking long-term growth potential. So, it can be a buy or hold for risky investors.
What happened to make Northland Power stock fall 12%?
Northland Power reported Q1 results with both sales and gross profit falling 11% to $622 million and $569, respectively. Its adjusted EBITDA also declined 16% to $352 million. As well, its free cash flow (FCF) per share dropped 19% to $0.62. Obviously, the market did not like these declining results. However, Northland believes it’s “on track to achieve full year financial guidance.”
Its 2023 guidance is as follows:
- Adjusted EBITDA of $1.2 to $1.3 billion (based on the midpoint, down 11% versus 2022)
- Adjusted FCF per share of $1.70 to $1.90 (down 8%)
- FCF per share of $1.30 to $1.50 (down 13%)
No investor likes declining business performance. Another factor for the stock price decline is inflationary pressures are making it costlier to build the Baltic Power offshore wind facility.
The press release noted that the adjusted free cash flow excludes $100 million (about $0.40 per share) that will be used for investing in the growth of the utility. Other than FCF, Northland also has $580 of available liquidity, including $74 million of cash on hand and the rest in a revolving credit facility. For reference, it’s estimated to pay out about $217.2 million in dividends over the next 12 months.
Northland is not as risky, as Nuvei and pays a good dividend yielding about 4.2%. Additionally, it has an investment-grade S&P credit rating of BBB. Given the stock appears undervalued, it can be a good turnaround investment over the next three to five years.
What happened at goeasy?
goeasy is a a business that is growing at a good clip, which has led to a pop in the stock. It reported excellent Q1 results as follows:
- Loan origination jump 29% to $616 million
- Loan growth of 58% to $196 million
- Loan portfolio growth of 39% to $2.99 billion
- Revenue increased by 24% to $287 million
- Adjusted earnings per share rose 14% to $3.10
- Adjusted return on equity (ROE) of 23.9%
Although the stock remains cheap, the leading non-prime Canadian consumer lender may have trouble persisting flying high in this year’s macro environment that expects a recession. Nonetheless, it pays a decent dividend yielding 3.6% with solid dividend growth. It’s a riskier investment than the big Canadian bank stocks, but it offers higher returns potential for the long haul. So, higher-risk investors can consider buying some shares.
Investor takeaway
Stocks are risky investments, which is why investors should take care to diversify their portfolios properly. It involves investing in different industries and sectors at the right price, selecting top companies from your chosen industries or sectors, sizing your positions appropriately, and having a long-term investment horizon.
