We’ve all heard the term that the capital markets are efficient, but in my opnion they certainly aren’t rational.
I’ve been involved with numerous publicly traded companies, and I’m always shocked when earnings and revenues increase, but the stock takes a hit because it “falls short of expectations.”
Recent case in point, from today’s news:
We’ve all heard the term that the capital markets are efficient, but in my opnion they certainly aren’t rational.
I’ve been involved with numerous publicly traded companies, and I’m always shocked when earnings and revenues increase, but the stock takes a hit because it “falls short of expectations.”
Recent case in point, from today’s news:
“3M Co. on Monday reported a 12 percent gain in first-quarter earnings, but its shares fell 6.1 percent after the maker of Scotch tape, Post-it Notes and industrial and health care products said sales were below forecast. Shares of the Maplewood-based manufacturer closed at $75.90 a share, down $4.96. Although revenue rose 4.6 percent, to $5.17 billion, it fell short of the $5.26 billion that had been forecast, according to the average estimate of analysts surveyed by Thomson First Call. The revenue gain was the smallest for 3M since the third quarter of 2002.”
Yeah, you read that right. Because revenue missed by 1.8%, even thought earnings roared, the capital markets devalued 3M. I’m could lead a case for arguing against efficiency, but this certainly isn’t rational.
Stock prices are reflections of future revenue and earning expectations in current time. When a company reports positive quarterly earnings, without the presence of a one-time event such as the sale of a dog-division, with a record-setting upward trend, that tells me that management and operations are in synch and future expectations should be raised.
Taking a 4.6% hit on the heel of good news isn’t rational and doesn’t reward management or employees. Instead, it causes management to look outside the corporate window and focus their time on managing Wall Street, rather than managing a business. As a shareholder of the business, I get frustrated when a company performs outrageously, and then gets hammered because a couple analysts on the Street decided to downgrade or warn.
It just goes to show that your stock and share price isn’t necessarily valued by the performance of the company, but instead by the perception of a select group of people, who have likely never run a business in their life.
I can tell some Best Buy stories if y’all are interested.