It was clear that investors didn’t like Mindbody Inc’s (NASDAQ:MB) first-quarter earnings report on May 8, as the shares took a 17.6% haircut the day after the numbers were released. The company beat on both the top and bottom lines, so the culprit was the fact that full-year earnings guidance was lowered.
It also didn’t help that the stock had rallied 20% in the three weeks prior.
MB stock traded at its best level ever just two days before the quarter was reported, and the sell-off took it down to a low just under $35. However, it has since bounced 14% and is now attempting to break through resistance around $40. If it’s successful, I suspect we’ll see some fresh buying activity.
Focused on the Long Term Potential for MB Stock
Unfortunately, I wasn’t all that surprised to see the shares pull back after earnings. We’ve been seeing it all season — companies that beat the headline numbers and issue upside guidance have still fallen back following their reports. It all comes down to how the stock traded in the weeks prior. The market priced in perfection for a large number of high-growth momentum stocks, and when anything less than that perfection was reported, selling followed.
That’s exactly what we saw happen with MB stock.
Lowered 2018 guidance was a major blow, and investors were quick to let their happy trigger finger take the lead. But not me. My bullish long-term view remains unchanged, and I actually think the first-quarter results were skewed by a number of acquisitions that hurt the fundamentals in the short term but will be the catalyst that drives MB’s long-term success.
The company spent $183 million on acquisitions over the last three years, which is almost equal to the amount of sales it did in all of 2017.
A high-spend, high-growth business model often pays off in the end, but from quarter to quarter the volatility is elevated because of how it affects short-term numbers. And if you’re invested in a company for its potential, that shouldn’t matter. I have always said that making long-term decisions based on short-term factors is one of the biggest mistakes most investors will ever make.
MB stock’s long-term outlook is as positive as ever as it continues to grow both organically and externally through acquisitions.
This company is cementing itself as the leading provider of fitness and wellness software, and I continue to see plenty of upside in the months and years ahead.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.