Earnings create movement and set the trend for a stock for the following three months. A stock can post a blowout quarter and see great movement and a shift from pessimism to optimism (i.e. Netflix, Inc. (NASDAQ:NFLX)) or vise versa. But sometimes, the market gets it wrong and the stock trends in an incorrect direction. Sometimes it creates value and other times it creates a value trap. With that being said, let’s look at four top premarket movers as a result of earnings on Wednesday to determine if the moves are warranted.
Incredible Earnings Were Already Priced In
Trulia Inc (NYSE:TRLA) was among the largest movers in early trading, with gains over 15%. The company announced Q4 earnings on Tuesday after-the-bell where it posted revenue of $20.6 million, a 75% gain year-over-year (yoy) and $1.61 million better than the consensus. The company then posted an EPS loss of $0.03 that missed expectations by $0.01. Therefore, as you can see, the quarter was mixed to say the least, nothing too impressive.
The company’s guidance was impressively strong, as was its growth in individual segments. Yet still there were way too many negatives on this quarter. This is a stock trading with a price/sales of nearly 11, and is rising to a large degree on a mediocre quarter. Furthermore, the company saw great yoy growth in all areas, but data such as monthly visitors, mobile monthly unique visitors, and mobile monthly unique subs were flat over last quarter. For companies with this valuation, quarter-over-quarter growth is important, and this is an expensive stock, with mediocre earnings, and weakness over last quarter that is illogically trading higher after earnings.
Tech Stock Falls But Could Go Much Lower
Rackspace Hosting, Inc. (NYSE:RAX) took a hard-hitting loss of 12% on Wednesday after reporting its quarterly results. The expensive technology company grew by just 25% year-over-year, missing both top and bottom line expectations. The company saw a slowdown in server count and net upgrade rates as it now appears that investors are worried about increased competition from the likes of Amazon and others. The company did see strong growth from its public cloud division, but it’s a small division and is not enough to carry the weight of this expensive stock. Therefore, with increased competition, slowed growth, and a P/E ratio of 100, I expect a significant downtrend from this stock.