My investing muse - when is an earnings beat worse?
My investing muse - when an earnings beat does not imply that the business is getting better, interest rate, PCE & Tesla
The above is the recent history of earnings forecast of AMD covering EPS and revenue. For the history above, we can notice that the single best quarter for AMD was the quarter ending June 2022 when the earnings beat both EPS and revenue forecast. In fact, it was the recent quarterly high for revenue at 6.55B and one of the highest quarterly EPS at 1.05.
For the following quarters, the forecast for both EPS and revenue has not matched this Q2/2022 peak. This means that a double beat does not always mean that it is doing better than previous earnings. Bringing down the estimate is one of the ways to achieve an earnings beat.
Ideally, we are hoping that there will be a gradual increase in both revenue and profits with each passing quarter. Having a double “quarter beat” of both EPS and revenue does not always imply that.
5 years is a (minimum) recommended timeframe for us to review a business’s performance. A longer timeframe can lend us greater confidence in a business.
Interest rates
The Fed will be announcing its decision on an interest rate hike in the coming week. This is expected to be the most “significant” macro announcement for the week, a result that is expected to cause waves in the market.
Most of us would assume that the Fed is expected to raise the coming interest rate. Some have argued that this has been “absorbed” into the recent prices. A contrary result would lead to much volatility in the market.
PCE
This is the preferred reference for inflation used by the Fed. Thus, Friday’s PCE announcement could also add to the volatility of the week. If the PCE remains sticky, the Fed would be able to remain hawkish in its approach.
Tesla
Tesla has beaten the forecast for both revenue and EPS. Despite that, the "drop” in profitability has plunged the stock 10% after the earnings.
It is not just about the beating of earning forecast but I guess many investors have set high expectations in the profitability too. This has overshadowed the (great) YoY gains made by Energy generation & storage (+74.2%) and Services & others (+46.7%).
Conclusion
The market looks nervy and I recommend caution despite the recent bull runs in the market.
@TigerStars
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There are a number of reasons why an earnings beat may not imply that the business is getting better.
Tesla is a company that has recently beat earnings expectations.
Tesla's earnings have been boosted by one-time events.
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