It can be confusing to investors when a company reports strong quarterly earnings report, but its shares get punished due to a
weak guidance.
It does, however, make sense. Part of a company's stock valuation includes expectations moving forward. In many cases, Wall
Street analysts will revise their valuation models to include a now lower than expected future performance, which affects not only
the bottom line but the stock's value today.
Five Below
For instance, specialty teen retailer Five Below Inc (NASDAQ: FIVE) reported its second-quarter results after Wednesday's market close. The
company said that it earned $0.18 per share in the quarter on revenue of $220.1 million. This represents a top- and bottom-line
beat as Wall Street analysts were expecting the company to earn $0.17 per share on revenue of $219.5 million.
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Looking forward to the third quarter, Five Below said it expects to earn $0.09 to $0.10 per share on revenue of $199 million to
$202 million. This doesn't compare favorably to Wall Street's estimates of $0.10 per share and $203.89 million.
Five Below also guided its full-year fiscal 2016 earnings per share to a range of $1.28 to $1.32 on revenue of $1 billion to
$1.009 billion. Similarly, the company's guidance implies the potential of falling short of the $1.31 per share analysts were
modeling on while the high end of management's guidance still falls short of the $1.01 billion analysts were modeling.
Even though some Wall Street analysts encouraged
investors to become buyers on the stock's weakness, shares dipped more than 5 percent.
Ambarella
Shares of Ambarella Inc (NASDAQ: AMBA) were
trading lower by nearly 7 percent on Friday after the company reported a better-than-expected second-quarter earnings print.
However, the company's guidance was cited as a reason for the strong selling activity.
Ambarella, a maker of components that are used in drones and action cameras, reported "strong" quarterly results, at least
according to Matthew
Ramsay of Canaccord Genuity.
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Takes Ambarella's Strong Results, Conservative Guidance
Ramsay pointed out that Ambarella's top- and bottom-line results were above what analysts were expecting. However, the analyst
stated that the company's guidance is a headwind.
Ambarella guided its third-quarter revenue to be in a range of $95 million to $99 million and expects its full-year fiscal 2017
revenue growth to be flat to down 5 percent. The analyst suggested that the guidance is conservative and reflects various
"near-term hurdles."
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