I’ve noticed an increasing trend where stocks are taking beating following their earnings releases. Normally, there’s been a roughly even chance of stock movements post-earnings, yet recent patterns seem to skew towards the negative.
This was particularly evident on March 21, 2024, which proved to be a challenging day for several companies.
Notably, Nike (NKE) and Lululemon (LULU), both leaders in the activewear sector, experienced significant drops of 7% and 16%, respectively, after announcing their results. Despite surpassing earnings estimates, their forward-looking guidance disappointed investors.
Nike projected a modest gross margin increase of just 1.2%, falling short of analysts’ expectations, and did not provide revenue growth forecasts for FY2025.
Lululemon’s revenue expectations ranged between $10.7 and $10.8 billion, below the anticipated $10.9 billion.
Similarly, IT consulting giant Accenture outperformed earnings predictions but slightly missed on revenue. The company also revised its revenue growth outlook downwards from 2%-5% to 1%-3%, leading to a 9% drop in its shares post-announcement.
FactSet, a financial data firm, exceeded earnings forecasts but did not meet revenue growth expectations, anticipating hitting the lower end of their 5% Annual Subscription Value growth guidance. This resulted in an 8% decline in share value.
Darden Restaurants also reported disappointing results, missing both revenue and earnings estimates, with same-store sales contracting for the first time since the pandemic began. The company adjusted its revenue and same-store sales growth projections downward, causing a 6% decrease in its stock price.
A unifying factor among these companies is their cautious or underwhelming forward guidance, leading investors to recalibrate share prices. This trend suggests that the post-earnings declines were rooted in specific concerns rather than merely negative investor sentiment.
In contrast, Micron (MU) announced a revenue forecast of $6.6 billion for the third quarter, significantly above the $6.02 billion expectation, propelling its stock up by 14%. FedEx (FDX), however, presents an anomaly with its stock rising 7% despite missing revenue forecasts and lowering future revenue guidance.
Given these observations, caution might be advisable for stocks with imminent earnings announcements, including Carnival, Cintas, McCormick, and Walgreens. A post-results reassessment could be more prudent.
Meanwhile, IPOs have recently garnered significant attention. Reddit (RDDT) and Astera Labs (ALAB) have seen remarkable gains from their IPO prices, up 76% and 136% respectively, indicating revived interest in initial public offerings.
An intriguing upcoming IPO is that of Trump Media & Technology Group Corp, merging with SPAC Digital World Acquisition Corp to trade under the ticker DJT on March 26, 2024.
This merger, associated with Donald Trump’s social media platform Truth Social, could generate speculative interest, particularly as Trump makes another presidential run. The SPAC’s value has already seen a significant increase, jumping 400% in anticipation of the merger. Given this backdrop, there’s a plausible scenario where Trump’s supporters might drive the stock price even higher, potentially beyond rational valuations.
