When Teradyne (TER 4.82%) reported fourth-quarter earnings last week, the results were better than expected. Revenue grew 16% year over year, while earnings per share popped 25%. Both top and bottom line were better than analysts' consensus estimates and exceeded management's robust forecast -- yet the stock fell 13% in the days following the report.
In this clip from Motley Fool Live recorded on Jan. 28, Fool.com contributor Dan Caplinger addressed the seeming contradiction.
Dan Caplinger: Yeah, I've been looking around, there is a question from Brad on Teradyne (TER 4.82%). I was looking up some numbers really quick here and trying to see what might be going on.
Brad says, "Looks like Teradyne reported good quarterly financials. Look pretty good to me, but stock is down 7.5%. Do you see something in the numbers that justifies the price going down? Is it good opportunity to buy the dip?"
Brad, again, I'm totally on the fly here. Did not see anything in those numbers specifically that gives me a whole lot of pause, but I will just note, I took a look at the share price. We're up from $75 bucks a share in September. We almost doubled. We almost hit $140 in late January, just a week-and-a-half ago. Now we're just down to $120. We're still up 50%, 60% from where we were four months ago.
I think this is the danger, and it's not just a Teradyne thing, it's an everything thing. The danger of saying, "The company released earnings and the stock did X in response on that day." What's the connection?
A lot of time, there's no connection because it's the wrong time frame to be looking at it. People look forward to finding out those quarterly results, they cover three months. For three months, people are speculating and the stock is moving about what is going to happen in those three months.
Finally on the day, you find out what they answer was, and it's like, if you say, well, people must have been disappointed because the stock is down 8% today. If it was up 70% in four months and now it's only up 60%, well, they're still doing something right because they're up 60%. It's just that they were down 8% today. Keep that in mind and don't read too much into the stock price movements.
The short-term things, if anything that this GameStop (GME 9.35%) thing has taught you is there is a lot of stuff going on in the market that doesn't have anything to do with fundamentals of the company. If you let it distract you too much, it can take you out of a position that you really like because it's going to serve you well in the long run.