FleetCor pumps out the profits, but investors today think it has a leak. Image source: Getty Images.

What happened

When gas card provider FleetCor (NYSE:FLT) reported Q3 earnings on Tuesday, it did everything you'd ordinarily hope a company reporting earnings would do. It reported better-than-expected revenue -- up 7% year over year to $484.4 million, whereas Wall Street had expected $482.8 million. It reported better-than-expected earnings per share onthat revenue -- up 15% year over year at $1.92 pro forma, versus a Street consensus of $1.86. (Actual GAAP earnings were up 10% at $1.36 per share.)

But then investors sold off FleetCor stock in Wednesday trading.

So what

As of 3:00 p.m. EDT, FleetCor stock was down a good chunk of change -- about 11.3% from its pre-earnings closing price. So what were investors so upset about?

My best guess is that guidance is to blame. Despite beating analyst estimates on both sales and earnings in Q3, FleetCor declined to guide investors to expect any higher earnings for the rest of the year than they were already expecting based on analyst estimates -- which is what you would have expected it to do if Q3's performance was sustainable, and Q4 was to build on that momentum.

Instead, with Wall Street predicting $6.86 pro forma for the year as a whole, FleetCor merely bracketed that number, saying it expects to earn between $6.82 and $6.90. Worse, FleetCor noted that revenues will probably come in between $1.81 billion and $1.83 billion. Both those numbers are below the consensus estimate of $1.85 billion.

Now what

Shifting our focus from the pro forma numbers that FleetCor emphasizes, and that Wall Street accepts at face value, we note that FleetCor says actual, unadjusted GAAP earnings this year will range between $4.94 and $5.02 per share. The stock currently costs less than $156 per share after today's sell-off. And so this still leaves FleetCor stock selling for a very rich multiple of more than 31 times reported earnings.

And that right there is where I think you'll find the problem. Growing earnings at 10% (GAAP) or even 15% (pro forma) simply isn't fast enough to justify the kind of earnings multiple that investors have been paying to own FleetCor stock. At these prices, merely "beating earnings" isn't enough to sustain the stock price -- FleetCor needed to beat those earnings with a stick. It failed to do so, and the stock's being punished as a result.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.