However, sometimes even that isn?t good enough.
Amazon.com (AMZN), one of the companies that proved the Internet was a viable business venue, reported earnings that were what the market was expecting.
Unfortunately, that was the only good news the company reported. Fourth quarter sales and net income came in below where the market thought they ought to be.
The company still made money, but earnings and revenue fell just short of what was expected. The result was the market hammered the stock.
Growth stocks are supposed to grow. When they don?t meet expectations, the market is usually not very forgiving.
Amazon joins three other Internet giants, Google (GOOG), Yahoo! (YHOO) and eBay (EBAY) in disappointing investors this earnings season. These are all high growth stocks that have failed to live up to their expectations.
Google, in particular, suffered its first bad quarter after seeming to do no wrong.
The contrast here is the market rewards stocks that meet or beat short-term estimates and punishes stocks that fall short.
Earnings Important
Earnings is only one piece of information; however, it is a very important piece. When earnings slide or don?t grow as fast as expected, analysts get nervous.Although earnings get most of the headlines, they are only the answer to the equation: Revenues ? Expenses = Earnings.
Obviously, this is an overly simplified formula, but it still illustrates the point.
If earnings dip (or rise), it is because of changes in Revenues, Expenses or both.
If Earnings dip for a quarter, are Expenses higher than expected? Or did Revenues not come through like expected? Where is the problem?
During the earnings season ? that time each quarter when a large number of companies report earnings ? watch what happens to stocks that meet or beat estimates and those that don?t.
For more information on earnings, see my article It?s the Earnings.