Newbie Lesson - The importance of expectations
Expectations are crucial for the markets movements.
Wall Street analysts and investors set companies’ prices by looking not only at current profitability but also by analyzing future expected profits.
Any deviation from what the investors were expecting makes the prices of a particular stock go up or down, thus making the market move.
Let's see this with an example:
Walmart reports earnings this quarter of $0.98 per share (down 4.90% from last year). Analyst expected $0.88 per share.
What would you think happened to the stock price?
Again, you are right! The price of the stock went up 9%.
Investors were expecting lower earnings of $0.88, thus $0.98 earnings per share meant the company did better than expected.
As you can see, any deviation from expectations cause significant movements and we have to be aware of the market/analyst expectations.
We have to track not only revenues but know what are the drives can move the stock price.