What happened

Shares of technology research and advisory company Gartner (NYSE:IT) dropped steeply in early trading Tuesday, falling more than 11% after reporting fiscal Q4 earnings that fell short of analyst estimates, before recovering to post only about a 3% loss as of 2:50 p.m. EST.

Gartner reported earning $0.92 per diluted share in Q4 ($1.20 pro forma) on sales of $1.09 billion. Wall Street analysts had predicted adjusted earnings would be $1.25 per share (so Gartner missed by a nickel). Gartner's sales number, however, was as expected.

Cartoon characters watching a stock chart fall through the floor.

Gartner stock dropped after a miserable earnings report -- then suddenly stopped dropping. Why? Image source: Getty Images.

So what

It gets worse. Although Gartner's sales number grew 7% in comparison to last year's Q4, the company's earnings -- which, again, missed estimates -- declined 21% year over year.

Free cash flow -- which at just $7 million was already way below reported net income of $84 million and indicated a low quality of earnings -- declined 50% from last year's Q4 haul of $14 million (which was itself far weaker than Q4 2017's reported net income of $107 million).

So you see, there were plenty of things for investors to not like about this report.

Check out the latest Gartner earnings call transcript.

Now what

Gartner compounded the damage of its earnings miss by predicting another miss in 2019. Management said it expects to report pro forma profits of between $3.82 and $4.19 per share, which compares poorly to Wall Street's expected $4.22. (GAAP profits should range from $2.65 to $3.03 per share.) On sales, Gartner said it might collect anywhere from $4.22 billion to $4.32 billion -- and the company will have to max out those sales if it's to hit Wall Street's sales estimate, which is also $4.32 billion.

So why did investors ultimately stop selling Gartner and let the stock off with only about a 3% sell-off? It's hard to be sure, but here's one theory:

At a P/E ratio of more than 100 times its $1.33 trailing GAAP profit today, with earnings falling not rising in the most recent quarter, Gartner looks pretty expensive. But Gartner says GAAP profits, at least, are expected to rebound this year -- perhaps doubling or more. Maybe investors are looking at Gartner and its 100 P/E, comparing that to the one-year expected growth rate of 100%-plus, and thinking that's actually not such a high P/E after all?

As I say, it's a theory.