Dollars and Jens
Sunday, October 12, 2003
Expectations and Stock Prices
To follow up on The Dean's thoughts (and to announce my presense): occasionally you'll see stock prices move down even when they beat expectations. There are two main reasons for this. The first reason is that the announced expectations aren't what the market is actually expecting. Around 1999 this was particularly common among tech stocks -- the "consensus estimate" for a quarterly earnings report would be nine cents per share, but the well-known "whisper number" was eleven cents, so if the company reported ten, it would drop. If it strikes you as stupid that analysts published fake numbers as estimates and announced serious numbers as well, then you're ahead of where a lot of investors were in 1999. I haven't heard much about whisper numbers recently, but it's still possible (if rare) for the market to have a different impression than the concensus estimates put together by First Call.

More common these days, I think, is that a company will report earnings in line with -- or even slightly better than -- the estimates, but will indicate that the longer-term future is less rosy than had been thought. Stocks don't trade solely based on the next quarter's earnings.

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