Small caps biggest losers

The reporting season may have gone better than many had expected but the period held its fair share of disappointers.

The reporting season may have gone better than many had expected but the period held its fair share of disappointers.

The two worst-received earnings reports from our watch list last month came from packaging group Colorpak (CKL) and mapping services company Nearmap (NEA).

Colorpak got the wooden spoon with the stock underperforming the ASX All Ordinaries by 11.7% on February 3 – the day it released a weaker than expected first half result with underlying net profit crashing 44% to $2.7 million group revenue falling 11% to $82.6 million.

Analysts polled on Bloomberg have cut their 2014-15 earnings per share projection by nearly 10% to 9 cents even as the company said it would return to growth in that year.

I downgraded the stock on the result as I believe there will be time to buy back into the Colorpak story with the stock continuing to lag the market by 8.9% in the week following the earnings news.

Nearmap also didn’t give shareholders much to cheer about. The stock underperformed the All Ordinaries by 10.9% on February 24 when management discovered that a 96% surge in revenue to $7.9 million and a maiden interim profit of around $800,000 were not enough to keep the stock in investors’ good books.

The problem was that the market was expecting a bigger reward for pushing the stock up over 300% in the last 12-months.

Consensus forecast had to cut their 2014-15 EPS target on the once-market darling by 10.1% to 1.5 cents. The stock is trading close to five-month low on Monday of 46 cents.

This puts the stock on a very large price-earnings (P/E) multiple and stocks that trade on blue-sky multiples have really no room to disappoint.

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