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Earnings surge – stock plunges

Are you looking to your future performance or confident that the past one is enough to carry your stock price during this earnings season?  CEOs across the globe continue to be shocked when their stock takes a hit at the earnings announcement when the past quarter was so good.

If there is one lesson to be learned from the steep decline of Adobe’s shareholder wealth this morning is to understand that analysts take a brief look at what has happened in the past and then focus their attention on what is coming in the future.  Should Adobe have pre-announced?  YES.  The market hates surprise.  Stock prices are valued on future valuations and Adobe’s vision did not match that of their analysts and investors.

What should they have done?  More importantly, as that is now history, what should companies who are approaching earnings season do to avoid this pitfall and loss of shareholder value?

Take a look at the consensus – it doesn’t matter that you did not give official guidance – there is a consensus on your future earnings and you are not protected if your forecast is not in line with market expectation.  If there is a significant difference, then pre-announce.  Your stock may take a hit at that time but your credibility will remain intact