Daqo New Energy Earnings WTH?

[Qs Laptop]

I bought into Daqo New Energy (DQ) a couple weeks ago at $57.10. This company is the world's #1 supplier for high-purity polysilicon for the global solar PV industry. Basically they provide the raw material to make solar cells. They are based in Shanghai, China.

They reported earnings yesterday.

Here's the revenue portion of the Income Statement:




Increasing revenue. Check
Increasing profit margin. Oh yeah.
Increasing earnings. Definitely
Looks pretty good to me!

But, stock price is down today and has fallen from $56 a share a week ago to $46 today.

The stated reason is earnings per share didn't meet expectations, but look again at the jump in EPS from just last March.

What's really going on here?

 

[ERD50]

The stated reason is earnings per share didn't meet expectations,

That is the reason.

This isn't uncommon at all. It happens in reverse as well.

Company XYZ reports a 20% drop in sales and a $2B loss. Stock goes up.

Why? Because "the market" was expecting a 25% drop and a $2.5B loss. Stock prices are based on future expectations.

-ERD50

 

[ExFlyBoy5]

I bought into Daqo New Energy (DQ) a couple weeks ago at $57.10. This company is the world's #1 supplier for high-purity polysilicon for the global solar PV industry. Basically they provide the raw material to make solar cells. They are based in Shanghai, China.

They reported earnings yesterday.

Here's the revenue portion of the Income Statement:


View attachment 39897

Increasing revenue. Check
Increasing profit margin. Oh yeah.
Increasing earnings. Definitely
Looks pretty good to me!

But, stock price is down today and has fallen from $56 a share a week ago to $46 today.

The stated reason is earnings per share didn't meet expectations, but look again at the jump in EPS from just last March.

What's really going on here?

You really expect a stock price to reflect the fundamentals? Where have you been the last 18 months?!

 

[Qs Laptop]

You really expect a stock price to reflect the fundamentals? Where have you been the last 18 months?!

Well, you got me there...

 

[Qs Laptop]

That is the reason.

This isn't uncommon at all. It happens in reverse as well.

Company XYZ reports a 20% drop in sales and a $2B loss. Stock goes up.

Why? Because "the market" was expecting a 25% drop and a $2.5B loss. Stock prices are based on future expectations.

-ERD50

Yes, I understand that is how it works.

"The market" is really just an analyst or three that took DQ's forward guidance and published an expected earnings per share number.

DQ's forward guidance is skimpy at best and hasn't changed since Q1. They said they were going to produce 'X' tons of material in Q1 and they did exactly that. They said they would produce 'X' tons of material in Q2 and they did exactly that. As far as I can see the company itself never projected EPS numbers.

 

[ERD50]

You really expect a stock price to reflect the fundamentals? Where have you been the last 18 months?!

Well, weren't the consensus estimates based on fundamentals? It appears the stock moved because of a delta between analysts estimates and actual performance.

Yes, I understand that is how it works.

"The market" is really just an analyst or three that took DQ's forward guidance and published an expected earnings per share number.

DQ's forward guidance is skimpy at best and hasn't changed since Q1. They said they were going to produce 'X' tons of material in Q1 and they did exactly that. They said they would produce 'X' tons of material in Q2 and they did exactly that. As far as I can see the company itself never projected EPS numbers.

Well, whatever guidance is out there wasn't met, so the stock dropped. You yourself said: "The stated reason is earnings per share didn't meet expectations, ". Unless you have another explanation, that stated reason makes perfect sense to me. Regardless whether the analysts were doing a good job or not, it is what it is.

I recall someone saying that instead of the 'journalists' reporting that a "company missed estimates", shouldn't they be saying "the estimates were wrong"!

-ERD50

 

[Qs Laptop]

Well, whatever guidance is out there wasn't met, so the stock dropped. You yourself said: "The stated reason is earnings per share didn't meet expectations, ". Unless you have another explanation, that stated reason makes perfect sense to me. Regardless whether the analysts were doing a good job or not, it is what it is.

I guess so. But consider--Quarterly increase in earnings per share was 178%. NOT GOOD ENOUGH. PUNISH THE STOCK!

I recall someone saying that instead of the 'journalists' reporting that a "company missed estimates", shouldn't they be saying "the estimates were wrong"!

-ERD50

That makes a lot of sense.

 

[ERD50]

I guess so. But consider--Quarterly increase in earnings per share was 178%. NOT GOOD ENOUGH. PUNISH THE STOCK! ...

It's not that 178% is not extremely good in and of itself, but it appears something more than 178% was "baked into" the price prior to earnings announcement. So in that relative sense, yes, it was *not* good enough. And the stock gets punished.

I'm really surprised that you are surprised by this. We see it all the time ion many different ways. If the Fed jobs report comes out and has very good/bad news in absolute numbers, the market reaction is going to be based on what was expected, as that is also "baked into" current market valuations. A "good" jobs report can tank the market if something "very good" was expected. A "bad" jobs report can raise the market if something "very bad" was expected.


NOTE: I purposely differentiate the words "company" and "stock" in the following - they are not interchangeable:

This is what, IMO, makes evaluating stocks that will do better than average so difficult. Even if one is correct in evaluating and even making a good prediction on how the company will perform in the future, if the people trading that stock have the same outlook for the company, then they have brought the stock price to that level of expectations. It seems to me that one must do at least two things, first, accurately predict how the company will perform going forward, and second, find a stock that you think is miss-priced (everybody else is wrong) based on your analysis.

Third and fourth, you need to time your moves in/out (or out/in if you are shorting) the position.

You have to ask yourself, if you have access to the same information others have, what makes you think they are wrong and you are right about the stock price? I think there are times that we might feel pretty confident that 'conventional wisdom' is wrong, or mob rule has taken over, or the market has over-reacted. If you can identify these regularly, and be right often enough, you can do well. I have done it a time or two, but I don't feel I can do it well enough to make it worth the risk any longer, but that's just me.

Good luck - ERD50

 

[ncbill]

Not to mention financial statistics from foreign companies should always be viewed with a healthy degree of skepticism...they're not required to adhere to GAAP.

 

[NW-Bound]

I don't follow DQ or other makers in the solar power business. Just looked at DQ's fundamentals, and they looked good. Barring spurious accounting activities, I don't understand how the company has such a low P/E of less than 9, while its growth rate is that good.

And speaking of polysilicon, more and more of the panels on the market are now made with monosilicon which provides for a higher efficiency than with polysilicon. Apparently, the price of monosilicon has been driven down enough that the lower price of polysilicon is no longer attractive. And DQ is stepping up its manufacture of monosilicon. What's not to like?

Regarding the drop of a company share price after the announcement of a good quarter earning, I have seen the same phenomenon with stocks that I own. And in addition to the earnings beating analysts' estimates, the guidance given for the full year was also raised. No matter. The stocks still dropped.

This makes me wonder if investors are pricing in a global economic downturn due to Covid Delta variant, which would make the company's prediction too rosy. But if that is the case, then why wait until the quarter announcement is made? Were investors hanging on, waiting for some surprise that they did not get?

It should be noted that some retail stocks such as Target and Kohl rose after their earning announcement. It was said that investors expected the reopening trade to continue, and this was the same reason that Amazon was punished earlier.

Investors' buying/selling decisions are such a conundrum. Theories are ventured to explain traders' actions, but I guess nobody really knows.

 

[VanWinkle]

Everyone that counts already knows the same information you have posted. There are no "get in early" secrets about this stock as is the case in thousands of stocks. I wish you good luck, but I'm no a believer in buying individual stocks due to a lack of time and a crystal ball.

VW

 

[NW-Bound]

Obviously, not the entire world knew about the DQ earning report until the company released it. Now, of course, everyone knew.

What the OP asked was why the stock crashed after the earning was released. The downward price movement did not appear to be coincidental. There had to be a reason, and the OP wondered what it was.

Perhaps the "whole world" knew that the company book was cooked, except for the OP.

But whatever new information that the whole world now knew, it had to be related to that quarterly earning report.

 

[Beststash]

Stock Market Manipulation. The retail investor is not able to compete with these forces on a short term basis. The only way to win is long term investing.

 

[Sunset]

Well, if you bought into Daqo New Energy (DQ) a couple weeks ago at $57.10.

Now it's a HOT DEAL at $46....

Or the company president is going to be arrested in 2 days for fraud.

 

[NW-Bound]

I looked around on the Web, again out of curiosity. Found that the company production facility is in the Xinjiang region, and has been accused of using forced labor of the oppressed Uyghur minority. The company product may be shunned by Western customers in the future.

Secondly, investors do not think the current high earning will last, due to more production coming online from all the producers of this commodity.

The catalyst of the recent decline is indeed from the earning report itself. As other posters noted, while the earnings look good, the market expected more.

DQ logged earnings of $3.03 per share for second-quarter 2021, up from 3 cents in the year-ago quarter. Earnings for the reported quarter lagged the Zacks Consensus Estimate of $3.29.

The leading producer of high-purity polysilicon registered revenues of $441.4 million for the quarter, up more than three-fold year over year. It, however, missed the Zacks Consensus Estimate of $462 million.

 

[triangle]

Looks like Daqo has largely recovered. But there has been a lot of negative headlines about investing in Chinese companies with US based listings, especially since the Didi misstep. Though maybe will be okay given the negativity is priced in?

Interview today (or yesterday) on CNBC with someone who knows a lot more than me:

 

[corn18]

Buy the rumor sell the news?

When I worked at defense megacorp, I knew a lot about the entire corporation's financials. Couldn't trade because of that. But I could never figure out why our stock went up or down. Blow out quarter beating all analysts expectations: stock goes down. Mediocre quarterly results, stock goes up. Over the long term, though, our stock price generally tracked our sector based on the prevailing P/E.

So take a longer view unless you are day trading. If the company is solid, the stock will track the company performance over the long haul.

And I agree with a previous poster, I wouldn't trust any financial data coming from a Chinese company. Seems odd that they always hit their numbers exactly. We never did that.

 

[ERD50]

DQ was up in 66 area yesterday. A nice pop from your $57, esp after that big drop. Have you taken any action?

-ERD50

 

[Qs Laptop]

DQ was up in 66 area yesterday. A nice pop from your $57, esp after that big drop. Have you taken any action?



-ERD50

I saw that move. No, I'm still holding. If it gets to $70 or above, I'll likely sell.

 

[Qs Laptop]

I saw that move. No, I'm still holding. If it gets to $70 or above, I'll likely sell.

It's been spiking lately so I sold. Not bad for 3 months. Didn't want to get too greedy...




It's in a Roth account so no taxation.