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OK, someone explain this to me because I've never understood: 1) Company says it's going to make $1.00/share 2) "Analysts" says it's going to make $1.10/share

by hvs 15y ago

OK, someone explain this to me because I've never understood: 1) Company says it's going to make $1.00/share 2) "Analysts" says it's going to make $1.10/share 3) Company actually makes $1.05/share 4) OMG sell the stock!!1! it missed some arbitrary number!1 I'm a libertarian, but crap like this really irks me.

chugger 15y ago
read my comment above.
harryh 15y ago
The current stock price is set by the market. It's (at least to a large degree) based on the market's best estimate of the future earnings of the company. This is certainly related to the company's public statements on the topic but as companies often "under promise so they can over deliver" it's not exact. So now, new information has come in that slightly changes the market's view of the company's future. How else do you think it should work?
rayiner 15y ago
The company has an incentive to under promise and over deliver. The analysts are morons.
kooshball 15y ago
Why does this irk you? It's a (mostly) free market and people do as they please. The stock price follows that naturally. Before the earning, the stock is priced in at the value from 2). After the earning, the stock drops down to the price that's valued with the actual earning numbers, which is lower than 2). This should not be a huge surprise to anyone. The apple case here is only slightly exceptional in that Apple is known for giving very conservative guidances, which is why the analyst's estimates are almost always higher than the guidance. In the past quarters, even that number was exceeded. It's just not the case here and the stock drops accordingly. I do think there is likely potential for future growth given the extremely high guidance given for Q1, which knowning Apple, is still conservative. disclosure: i'm long aapl
- bestes 15y ago
  Because it feels like irresponsible reporting. Fine for the Wall Street Journal, I guess, since those readers know what it means. I guess I should be happy if this is comparable to the "Apple is doomed!" stories that used to be in vogue.
Jun8 15y ago
Your sentiment is shared by so many people who deem this sort of thing "injustice". I think the problem is thinking that the stocks have an innate value, they don't, the value is completely determined by the market. Compare and contrast with the following (too common, alas) scenario: 1) Student tells parents that he'll get a B on a course. 2) Parents just know that s/he can do better, so they expect A. 3) Student actually gets B+. 4) Student gets grounded, etc. This would be different, since the grade that the student can "optimally" get from a course is determined outside of parents (simplistically speaking), so they are unjustified in having inflated estimations. That is, in this case, there's an actual quantity (the grade) that (i) is independent of the estimators and (ii) has a "true" value. Both of these assumptions fail for the stock example. Another fallacy is, when reading news like "Markets slump, billions lost" to think that actually billions of dollars were lost. Money is lost when you drop it out of your pocket or when an asset is destroyed, e.g. by fire. In this case what is lost is the expectation of making money. I'm just an engineer, this is my simplistic understanding of the matters.

by hvs 15y ago

chugger 15y ago

read my comment above.

harryh 15y ago

The current stock price is set by the market. It's (at least to a large degree) based on the market's best estimate of the future earnings of the company. This is certainly related to the company's public statements on the topic but as companies often "under promise so they can over deliver" it's not exact. So now, new information has come in that slightly changes the market's view of the company's future. How else do you think it should work?

rayiner 15y ago

The company has an incentive to under promise and over deliver. The analysts are morons.

kooshball 15y ago

Why does this irk you? It's a (mostly) free market and people do as they please. The stock price follows that naturally. Before the earning, the stock is priced in at the value from 2). After the earning, the stock drops down to the price that's valued with the actual earning numbers, which is lower than 2). This should not be a huge surprise to anyone. The apple case here is only slightly exceptional in that Apple is known for giving very conservative guidances, which is why the analyst's estimates are almost always higher than the guidance. In the past quarters, even that number was exceeded. It's just not the case here and the stock drops accordingly. I do think there is likely potential for future growth given the extremely high guidance given for Q1, which knowning Apple, is still conservative. disclosure: i'm long aapl

bestes 15y ago
Because it feels like irresponsible reporting. Fine for the Wall Street Journal, I guess, since those readers know what it means. I guess I should be happy if this is comparable to the "Apple is doomed!" stories that used to be in vogue.

Jun8 15y ago

Your sentiment is shared by so many people who deem this sort of thing "injustice". I think the problem is thinking that the stocks have an innate value, they don't, the value is completely determined by the market. Compare and contrast with the following (too common, alas) scenario: 1) Student tells parents that he'll get a B on a course. 2) Parents just know that s/he can do better, so they expect A. 3) Student actually gets B+. 4) Student gets grounded, etc. This would be different, since the grade that the student can "optimally" get from a course is determined outside of parents (simplistically speaking), so they are unjustified in having inflated estimations. That is, in this case, there's an actual quantity (the grade) that (i) is independent of the estimators and (ii) has a "true" value. Both of these assumptions fail for the stock example. Another fallacy is, when reading news like "Markets slump, billions lost" to think that actually billions of dollars were lost. Money is lost when you drop it out of your pocket or when an asset is destroyed, e.g. by fire. In this case what is lost is the expectation of making money. I'm just an engineer, this is my simplistic understanding of the matters.