Anonymous
Anonymous asked in Business & FinanceInvesting · 2 months ago

Why would a stock price drop after a high earnings report? ?

I purchased shares in a growth stock two weeks ago for $40. The stock was gaining momentum and released its earnings report yesterday. The earnings for this stock were two times more than expected, which I thought would be good news and drive the stock price up. The stock price dropped from $42 to $34 the day after the high earnings report was released. 

Why would a stocks price drop after a higher than expected EPS report? 

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  • Steve
    Lv 6
    2 months ago
    Favourite answer

    You mentioned that it was getting momentum. A stock wont go up forever. If it had like a 3 or 4 day positive run, then of course its going to crash down some. Thats the nature of all stocks. A large, fast run up will usually end with a nice dip no matter the earnings report. Many people probably sold the stock after the run up. People take the profit from that run up and buy after it gives back a lot of its fast gain. Let that be a lesson to you. A fast run up results in much of that gain being given up thereafter.

  • 2 months ago

    That's not just a decrease that's a dive.

    Without knowing the stock, it's difficult to know.

    Are you really talking about Fastly and fudged the numbers?  Fastly fell because of 12% of their business is from a single customer (Bytedance/TikTok) and that customer isn't considered stable. 

  • 2 months ago

    You have to look at more then the earnings. 

    For example, I once owned stock in a company that sold one of their major divisions. They got a lot of money from the sale so their earnings for the quarter were through the roof, but in doing so they had reduced their ability to make money in the future. 

    Just a month or two ago a health insurance company in which I own stock reported better than expected earnings, but the report included a warning that many people were delaying have surgical procedures due to the pandemic. Since these procedure were expected to occur once the pandemic was under control, they had delayed expenses, not reduced them. 

    A lot of retailers are closing a significant number of stores. Close out sales increased revenue and reduced expenditures since inventory was not being replaced, but will reduce profits in the future.

  • 2 months ago

    Stock prices are based on expectations.  So beating that on the actuals side is good, BUT.... if they lowered expectation for the future that is just as bad.    

    Maybe they stated they're going to miss a product release (like Intel recently).  Maybe they closed deals early and their pipeline is drying up.  There are a lot of things they may have disclosed outside of just their results which could cause concern.

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