Why Everpure Stock Plummeted This Week
Key Points
Everpure crushed Wall Street's sales and earnings targets for fiscal Q2 and issued big upward guidance revisions.
Investors focused on perceived issues with product gross margins, but this week's sell-off could be an overreaction.
- 10 stocks we like better than Everpure ›
Everpure (NYSE: P) stock got hit with a double-digit pullback this week despite a better-than-expected quarterly report from the company. Its share price fell 14% in the week.
Everpure published results for the second quarter of its 2027 fiscal year after the market closed on Wednesday, with the fiscal period having ended on Aug. 2. The company reported sales and earnings for the period that exceeded Wall Street's targets, but many investors focused on gross margin concerns and drove pullbacks for the stock.
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Everpure's fiscal Q2 report had many strong points
Everpure notched non-GAAP (adjusted) earnings per share of $0.70 on sales of $1.2 billion in fiscal Q2. The results came in well ahead of the average Wall Street forecasts, which had called for an adjusted profit of $0.58 per share and revenue of $1.1 billion.
Overall sales growth was strong in the quarter at 39.4%, product revenue increased 54% to reach roughly $687 million, and subscription services sales were up 20% to $499 million. Meanwhile, adjusted earnings per share surged 62.8% higher compared to earnings of $0.43 per share in the prior-year quarter.
Gross margin concerns overshadowed guidance hikes
With its latest quarterly report, Everpure raised its full-year sales target to between $5.03 billion and $5.07 billion -- up from its previous target for sales between $4.41 billion and $4.51 billion. The company also raised its operating income target to between $940 million and $960 million. Previously, the company had targeted adjusted operating income between $820 million and $860 million.
While the company's overall gross margin in fiscal Q2 came in at 69.9%, its product gross margin was 66.2% -- on the lower end of its long-term guidance for a margin between 65% and 70%. The company said that it was embracing lower product gross margins in order to facilitate market share gains and support customer relationships, but investors apparently found that a hard pill to swallow this week.
On the other hand, the business's sales and earnings momentum is looking very strong -- and the passage of time could show that recent sell-offs in response to gross margins were a significant overreaction.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Everpure. The Motley Fool has a disclosure policy.
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