What happened
Shares of Frontdoor (FTDR 0.11%) dipped 31.6% in November, according to data provided by S&P Global Market Intelligence. The stock sank after the company's third-quarter results arrived with a small earnings miss and disappointing guidance.
Frontdoor reported third-quarter results on Nov. 5, delivering earnings that fell slightly short of the average analyst estimate, and sales that came in ahead of expectations. However, management's targets for the full-year period suggested that the profitability of the business is slipping, and the stock saw steep sell-offs in the next day of trading.
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So what
Sales for Frondoor's September quarter climbed 7% year over year to reach $377 million and beat the average analyst estimate for sales of $370 million, but adjusted earnings per share of $0.58 fell a penny short of the analyst target. Gross profit margins in the quarter fell to 47%, down from 52% in the prior-year period, and guidance suggested that profitability will continue to decline.
Management expects full-year sales to come in at $1.25 billion but declined to issue an earnings target for the period. Instead, the company indicated that gross profit margin for the full year would come in between 43% and 44%, suggesting that margins for the fourth quarter will decline substantially from the third quarter's levels.
Now what
Frontdoor stock has continued to slip in December, with shares trading down roughly 5% in the month so far.
Frontdoor is now down roughly 26% from the closing price of its initial public offering in October. The company's home-maintenance-as-a-subscription-service model is intriguing, and the business is still generating attractive margins even if there are indications of a negative trend on that front, so it's possible that investors have overreacted in selling the stock down to its current levels.