Volcom shredding off the bottom

In a crowded field, Volcom is finding momentum again.

Jolted by a sub-par Q2 earnings report ($.02 short of estimates), and lowered guidance for 2007, the stock retreated to a mid-day low yesterday of $34.15. That gave VLCM longs 10 down days in 12 sessions. The stock was 33% off its recent high. Yikes.

Despite year-over-year quarterly earnings growth of -4.8%, bulls are pushing VLCM back into the 40s today. Shares are up nearly 12% today to $40.46. Still a steep fall from a pre-earnings high of $51, but buyers like the margins (profit 13%, operating 19%) and return on equity (22%). They also like a forward P/E of just 20 and a 25% gain in revenues.

The stock seems to be repeating last year's activity, when a poor Q2 report sparked a selloff, followed by a rise that led to an all-time high five weeks ago. At some point, the Co needs something to get it over the wall, whether it's a killer product or superstar spokesperson or something else. Until then, the stock will find its comfort level and trade sideways.

VLCM longs are devoted to the products and lifestyle. It will be very tough to convice new buyers to join in when there are a ton of other growth stocks that have raised guidance to the street. Will some longs sell into strength above 45, or even 40? Possibly, but should they hold their shares, the question is how does the stock draw new buyers?

Foolish Fools love Volcom, hate Crocs

I enjoy, to some degree, reading Motley Fool. I'm not a subscriber, but the Gardner Brothers have been right far more often than wrong about many great growth stocks, most notably (in my mind) AOL in the 1990s.

As for the ratings of stocks by Fools at the MF forums, that's a different tale. I found their disdain for Crocs quite baffling. In fact, MF gave CROX the not-so-esteemed title of "Worst Stock of 2007" at the beginning of the year.

But that's fairly old stuff. What caught my eye recently was a post at MF about one of their cherished 4-star rated stock, Volcom. Matt Koppenheffer insists that VLCM is worth buying here at a discount. This is more intriuguing to me than most comparisons because my nephew and I debated the merits of both Volcom recently when I did my monthly $100 stock purchase on his behalf.

My nephew is young, but he understands enough about fundamentals like profit margins, return on equity and total cash/debt to know how important they are. When he learned about Volcom's shrinking growth rate, he didn't hesitate for a second to shake his head and give Volcom, a company whose products he loves — I got a Volcom surfer wallet from him for Christmas — a clear No. The bad news from that conference call meant demoting VLCM from my B+ list down to a more pedestrian B. Though CROX is a meager 1-star pick by the Fools, for me, it remains an A- pick.

VLCM is up 4.6% today to $35.88. I agree with Koppenheffer that this is a solid company. But with so many great growth companies around, like Crocs and Apple, I wouldn't settle for Volcom. Until the Co figures out how to get back on the fast track, I'm staying out.

As of today, just for the Fools who diss CROX and applaud slowing VLCM, I'll start keeping track of the two head to head based on today's closing prices. I don't doubt that Volcom will rebound as it did starting last fall. I just don't see Crocs easing up growth anytime soon.

My nephew? He wound up choosing Under Armor (UA), a Co he's liked since he wore his first long-sleeved workout shirt.

Pupule Paul is long CROX and UA, and has no position in VLCM.

Pupule promotions, demotions

With a tide of earnings reports in, it's time for some shuffling in my stock pick lists. Movin' on up:

Nintendo NTDOY.PK whacked it out of the park with its gigantic revenues and profits.

If it's one thing about the Japanese market, the fluff and wild speculation are just not, well, fluffy and wild. Think about it. While we have intrigue and bubble thoughts hovering over China — not to mention the way the government's ownership in major stocks — it's not so in Japan. Savings rates among citizens are astronomically high, as always, and bubble-icious stocks are not as prolific as they are in China or the U.S.

That's not why I am so devoted to Nintendo, however. It's about the numbers, which don't lie. That's why I'm backing up my bullish stance (and holding) by moving NTDOY.PK from B+ to A-.

Finally.

Garmin This is a Co that was on my B list when it should've been at B+, which is where I'm moving it today. Not understanding what the Co does is a large reason why I paid so little attention to it. Strictly on the numbers, though, I liked it at the B level. GRMN's earnings report is due out on Wednesday.

Demoted:

Spartan Motors As a Co, not much has changed for SPAR. Landing contracts (or not) is a way of life, an irrefutable fact of life that alters its stock. But the flip side of it is that the fundamentals of Spartan won't make investors a profit unless revenues are realized, and without the latter, the stock has tumbled mightily. As much as I rely on a Co's fundamentals, stocks are about popularity to an unfortunate, but real extent.

Is yesterday's $1 million stock buyback going to turn the tide? With the earnings miss (by 6 cents per original estimate), that'll be tough. The Co is quite the same. Traders who ran it up and knocked it down ... they're the real Jekyll and Hyde here. The real longs will scoop up cheap shares here at $12, particularly with 40% annual growth coming, according to the Co.

Hoku Scientific Demoted from B- to C+. Great prospects, dwindling revenues (per last week's earnings report), huge promises. HOKU is not your average small cap. It's the equivalent of taking a promising young baseball player out of the minors after a short stint and starting him on a major-league team. Hard-working player, diligent on and off the field, but at least a year or two from hitting his stride.

Opposing fans ride him incessantly for his hefty paycheck. Home fans dote on him and believe he will develop into an All-Star in due time. HOKU traded up today, but at $9 is well off its high in the $14 range. This is likely a trader's dream for the coming 18 months.

Volcom An earnings miss has pulverized the stock, which traded today at $38, a 14% haircut. I own a Volcom surfer wallet and like it. However, unless some new products enter the market, VLCM is going to trade sideways for some time. Retail is a rough market, more so with an outdoor-oriented Co that misses in what should have been its best season of the year. I demoted VLCM from B to C+.

Joy Global Earnings aren't due for another month, but a guidance cut from JOYG sent the shares down 14% on Wednesday.

Demoted down to C+ by Pupule.

Dendreon The silence from top brass is deafening. Insider sales, including those by CEO Mitchell Gold, before the stock took a major plunge off a cliff on May 9, still haven't been explained sufficiently by the Co. Worse yet, the lack of transparency has the SEC mired in an "informal inquiry" of DNDN and its clinical trials.

Provenge is Provenge, a potentially life-extending immunotherapy treatment for prostate cancer patients. However, DNDN has shown no signs of life when it comes to navigating the treacherous waters of the FDA, hedge funds and big pharma. Provenge has been shelved for much too long, and no reason the Co has given can excuse the delay for patients.

Demoted from C to D+. Sadly, until management is shaken up or overthrown, Provenge will remain locked up.

Pupule Paul is long NTDOY.PK, HOKU and DNDN.