Blue Bird just delivered one of the sharpest disconnects of this earnings season. The stock dropped 14.2% to about US$66 after the Q3 report, even though the company reported US$517.2m in revenue and basic earnings per share of US$5.41. That is a large increase from earlier in the fiscal year and leaves the trailing P/E near 7.4x compared with a much higher machinery industry average.

Coming into the report, Blue Bird shares had already been under pressure over the last month. This quarter now requires investors to decide whether the stock’s slide or the earnings strength deserves more weight.

Is Blue Bird trading at a deep discount that the market is misreading, or are the low P/E and big fair value gap flashing a warning? Compare…