It used to be that for a stock to perform well, it had to meet market expectations and project a healthy growth or at least a positive above-consensus growth in the coming year. In other words, you only need to go through the checklist, make sure all the items are checked, and you are good to go. At the very least, going through these motions would ensure that your stock doesn’t erode. Well, it appears that this might not be enough. After all, we are living in an age where the NASDAQ 500 has busted through the 5,000 mark.
There are a lot of analysts saying that the market is overbought and there are really no cheap American stocks. Not surprisingly, expectations are really high. When expectations are really high, the other side of the market kicks in. I am, of course, talking about the bears – investors who are speculating for stocks to go down.
There are two ways to make money in the stock market. You can make money going up, which is most of the action, or you can make money going down. Short-sellers and bear investors are always looking for an opportunity to drive the price of a stock down. This is why it is no longer enough for a publicly traded company to report earnings that meet consensus estimates. They have to also project a positive picture for the rest of the year.
If you look at recent stock performance of companies that reported their earnings for the past quarter, quite a number got hammered not because they reported profits. A lot of their stocks got eroded because they had pretty bleak projections for 2015 going forward. In today’s Wall Street, doing well is not good enough. You have to do something extra. You have to do well over an extended period of time. This is why there is a lot of pressure on companies like Mylan (NASDAQ:MYL) to not just meet consensus estimates, which they did, but also to project a very positive picture in the future.
The interesting thing about the Mylan case is that the Thomson Reuters consensus is at around $4.16 in EPS and revenue projections come in at $9.8 billion. Mylan’s numbers are quite interesting because it said that its EPS range for 2015 will be $4-$4.30 and the revenue range would be between $9.6 and $10.1 billion. This is quite an interesting situation because the company is giving a range while consensus estimates have a hard number. Whether or not this is good enough for the market remains to be seen. It appears that the market is demanding more. They want a very rosy estimate in many cases.
