Warner Music Group (WMG) was out of favor with the market today. At the time of this writing, shares of the company were down over 16% on big volume. Wall Street did not appreciate the fourth-quarter release.
According to TheStreet.com, a loss, on an adjusted basis, of 3 cents per share was recorded. Analysts were hoping for a profit of 5 cents per share. The cited article goes on to report a not-so-comforting outlook for the near future. And in further bad news, TheFlyOnTheWall.com mentions a downgrade on the stock.
This is the problem with buying low-priced equities. You have to be very careful about the business model. In the case of the model in question, there are serious concerns. Management is still adjusting to the new world of lower-margin digital downloads. Sites run by entities such as Apple (AAPL) and Amazon (AMZN) have rendered distribution via physical media an almost antiquated curiosity undertaken solely for nostalgic value.
It's difficult to say when Warner Music will find its footing, but I can say without hesitation that the stock is not a candidate for a long-term investment portfolio. The company is speculative at best.
As to whether or not there might be a trade after today's action, well, there could be. Although I wouldn't recommend it. Shares have worsened since I began writing this article; my screen now shows them down over 20%. The market doesn't know what to do. It's confused at best, and honestly, that can be a good time to try a little exploitation of volatility for financial gain.
But, the risk is extremely high. Fundamentally, Warner Music is problematic. Technically, the stock may be broken in the short term. This adds up to a situation that should be avoided, even if there is a chance for a bounce in tomorrow's session.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
11-24-2009 @ 8:31PM
paul said...
WMG is the poster child for where the market really is. When stocks dip below five dollars, I was taught to stay away. When Warner hit two dollars a share my head was screaming "jump on it". I was taught don't, it is just gambling. The stock hit six dollars, I was telling myself "what a fool". I was taught not to gamble, stick with fundamentals. Warner is fundamentally broken. It was and still is. So is the stock market. There was absolutely no rational reason for the run-up of Warner stock, NONE. Same with the market. It's as if it has all become just another casino on a river and WMG just another chip.