Ouch! Compuware (CPWR) severely punished


On Friday, after the markets closed, Compuware made a preliminary announcement that its quarterly earnings would be about .01 per share. The Analysts had been expecting EPS of .06. In after-hours trading on Friday, CPWR shares immediately fell 15%.

Today, CPWR shares have continued to fall as the market punishes the stock severely for having missed The Analysts' Expectations.

CPWR chart

First and foremost, this illustrates the immense role that Analysts and Expectations play in the market. Mind, this was not the actual earnings report — just a preliminary advisory.

It also illustrates what a disadvantage ordinary "retail" investors are at. The big boys get to play in the market after it closes, whereas the rest of us can only grit our teeth as we watch the after-hours carnage. Now it is true that as an investor I could place a stop-loss order that would apply to after-hours trading, but on the Nasdaq it would be triggered by the bid price rather than last actual trade price, and it would have to be a stop-market order, not a stop-limit order. In after-hours trading, this is risky business.

It's also a dilemma for me because the price of CPWR fell way below the price that represents my loss limit during a time when I couldn't do anything about it. To sell now would be to take a much larger loss than my rules specify. To continue to hold poses the risk that it could continue to fall and I'll lose even more.

At the moment (10:30 PT, 2½ hours before the market close) the price is about where it was in late May before it took a jump above $5.50. Since then it has been trading between $5.50 and $6.50.

I have decided to hold:

  • At least one analyst is speculating that at least part of the shortfall may be due to a one-time charge
  • When the stock reached lows around $5.50 in late June and early July, I gritted my teeth and held on. It's lower now, but not that much lower in the grand scheme of things

This all makes me wonder if I've got my "rules" right. Volatility seems to be a fact of life in today's market, and indeed my investing strategy somewhat depends on that volatility to create profit opportunities. I may have to consider establishing two sets of rules: one set around the initial purchase and another set after a stock has already moved up a certain amount. This threatens to make my guidelines more complicated, but it may reduce the number of cases where I have to consider making an exception "just this once."