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The direction a stock moves after an earnings announcement has nothing to do with how good the earnings are in absolute terms. What matters is where they ended
by silotis 9y ago
The direction a stock moves after an earnings announcement has nothing to do with how good the earnings are in absolute terms. What matters is where they ended up relative to what the market was expecting. If AMD announced a 300% increase in earnings, but the market was expecting 400%, their stock is going to go down because 400% was already priced in. Similarly, a company's revenue can be down 300%, but if the market was expecting it to be down 400% the stock will rise.
- electic 9y agoIn this particular case, it has nothing to do with the earnings of the previous quarter. The stock is down after hours due to guidance for the current quarter. Investors were not expecting a 15% drop in revenue in Q4. Personally, think most investors are over-reacting and this is a good thing to keep analyst expectations in check. They are really getting out of hand with some of their forecasts on quarter to quarter performance.
- FridgeSeal 9y agoIn other words: your share price is a function of the emotions of fickle investors and their expectations (regardless of plausibility) rather than how well your company actually did.
- barrkel 9y agoShare price is an estimation of future performance, not past or current performance. Specifically it's supposedly the net present value of all future cash flows, discounted appropriately.
- ZenoArrow 9y agoHow do you respond to the comments of stock market investors that suggest the market is frequently irrational?
- lmm 9y agoThe market is inherently volume-weighted, and there is much more "smart money" than "dumb money".
- ZenoArrow 9y agoTo give an example of something a smart investor would do, Warren Buffett supposedly only invests in industries he understands in depth: http://www.investopedia.com/articles/05/012705.asp http://www.investopedia.com/articles/05/012705.asp What proportion of investors would you suggest show such restraint? Over half?
- lmm 9y agoThe proportion of "investors"? Low. The proportion of market capital allocation, among people doing active allocation for long-term buy and hold strategies? Very high.
- Malician 9y agoWell, yes, but that's not the point being made: the stock market aggressively prices in expectations ahead of time to avoid losing money. The reason the stock goes down is because the gain is already priced in!
- lmm 9y ago
- kgwgk 9y agoHaving negative revenue is technically possible, but the example of a company’s revenue being down 300% or 400% seems extremely unlikely. ;-)