What happened

Jack be nimble, Jack be quick... Jack Henry & Associates (JKHY 0.50%) stock dropped 10% this morning, and is still down 8.6% as of 12:45 p.m. EST. It may not rhyme very well, but unfortunately, it's true.

Yesterday after close of trading, the payment processor reported fiscal second-quarter 2021 earnings that easily beat the consensus target. It earned $0.94 per share where analysts had forecast only $0.87. Sadly, the company's quarterly sales of $422 million fell short of analysts' hoped-for $433 million, and I suspect this is the reason the stock is down today.  

Simple red arrow declining stock chart on a white checked background

Image source: Getty Images.

So what

Does it deserve to be? As Jack Henry reported yesterday, sales increased only 1% year over year in fiscal Q2, and earnings increased not at all, remaining flat against the $0.94 earned in the year-ago quarter. Year to date, sales are now up 2%, and profits are up about 1%.  

These are pretty ho-hum results, to be sure. But they're not appreciably worse than what analysts were already forecasting. Viewed in that context, it's not really clear why investors would react so poorly to the earnings news per se.

Now what

Of course, it may not be the earnings news they're reacting to, but the guidance. Peering ahead through the rest of fiscal 2021, Jack Henry advised last night that it expects to earn between $3.85 and $3.90 per share this year, on sales of $1.76 billion or $1.77 billion. As with the Q2 results, that works out to an earnings beat over the $3.80 per share analysts were forecasting -- but a potential revenue miss versus consensus expectations for $1.77 billion in sales.

In short, what we seem to be seeing here is investors upset with Jack Henry for not growing its business faster than analysts had promised it would. The fact that Jack Henry is managing to hold its earnings steady -- or even grow them a bit -- in the middle of a recession seems to be winning the stock no credit at all.