Scholastic (NASDAQ: SCHL), the publisher of the Harry Potter books, issued its first-quarter numbers on Thursday. Although things do seem to be improving, I can't say I was wholly enchanted by the data.
Net sales from continuing operations rose 14%. Okay, that's a good start. Double-digit rises are always respectable. But then we get to the bottom line. Scholastic, which is a related business to McGraw-Hill (NYSE: MHP), lost 68 cents per share from continuing operations. Now, sure, the loss was considerably less severe than the year-ago black ink of $1.13 per share. But I always get nervous when I read about losses. Can't help it.
Maybe I shouldn't be so scared, though. According to Reuters, the expectation was for a loss of 83 cents per share (please note: the Reuters piece said it was only going by one analyst's opinion, so this might not be very meaningful). Plus, if you look at the stock, it's been very strong this year. It's actually not that far off from the 52-week high.
Cash flow from operations was negative, as was free cash flow. Again, though, less cash was used this quarter compared to last year's similar period. Yes, more evidence of an improving situation. And this is only the first quarter, too. According to management, the forecast is for positive free cash flow for the entire fiscal year.
I'll be honest: I won't be adding Scholastic to my portfolio. Yet, it probably wouldn't hurt to put it on a watch list. Considering the positive trend seen in the data, one might say that the rise in the stock is justified. However, it seems like every stock out there is heading for the moon now that recession fears are fading.
This is the time to search for the best ideas possible. Scholastic could go higher, but there are many companies out there whose charts are hot and whose fundamentals are likewise attractive (i.e., firmly profitable). I'd seek those entities out first.
Disclosure: I don't own any company mentioned; positions can change without notice.
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