Better than Expected Earnings, Stocks Lower! How?

Better than Expected Earnings, Stocks Lower! How?

2021-07-28 • Updated

Since the beginning of the earnings season, companies are posting record earnings, most sectors have so far beaten the estimates by a large margin. However, stocks reacted differently. Look at Apple, for example. EPS came in at $1.30 vs. $1.01 estimated and Q3 revenue posted $81.4B vs. $73.82 expected. Everything came in much better than expected, including iPhone, wearables, home & accessories, Ipad, Mac, and services. Apple has $194 billion in cash and marketable securities. Net cash was $72 billion, after deducting debt.

Despite all this, Apple stock declined to 142.60 after hours. Here there might be two main reasons for such declines (not only for Apple but most of the companies since the beginning of the earnings season):

  • Apple decided not to publish earnings guidance.
  • The market is looking for something new to be excited about.

However, the current decline is considered as another round of profit-taking after the board declared a cash dividend of $0.22/share. Therefore, I would consider the current decline as a price discount and would consider buying Apple shares in the medium term starting at $140 all the way down to $135.

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