Why Argan Stock Is Plummeting Today

Key Points

• Argan posted a big earnings beat in Q2, but it looks like the better-than-expected profitability will be a one-time event.

• Sales fell significantly short of the market's expectations in Q2.

• Argan reported a record contract backlog, but the timing of execution on those deals is important for investors.

• 10 stocks we like better than Argan ›

Argan (NYSE: AGX) stock is falling rapidly in Friday's trading. The company's share price was down 13% as of 1:30 p.m. ET, and had been down as much as 17.1% earlier in the daily session.

After the market closed yesterday, Argan published results for the second quarter of its current fiscal year -- a period ended July 31. While the energy and industrials company reported earnings that beat Wall Street's target, it also posted sales that fell significantly short of expectations.

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Argan stock sinks on weak Q2 sales

In Q2, Argan posted earnings of $2.50 per share on revenue of $237.74 million. The results were mixed in comparison to the average Wall Street analyst estimates, which had called for a per-share profit of $1.64 on sales of $243.97 million. While the company posted an earnings beat that might have otherwise triggered gains for the stock, it looks like the big beat on profitability was powered by one-off events that won't be sustained going forward. With that in mind, the company's sales miss has been big enough to prompt a substantial pullback for the stock.

What's next for Argan?

While Argan's sales missed expectations in the second quarter, the company did announce that its contract backlog had reached $2 billion -- a record level. If the company's sales miss in the second quarter winds up being attributable to a relatively minor difference in the timing of contract executions, it's possible that today's big sell-off will wind up looking way overdone with the benefit of hindsight.

On the other hand, the timing of contract actualization for the company's backlog is something that is important for long-term investors -- and sales in Q2 weren't encouraging.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.