It is all about the expectations
Reward and punishment
22-Jul-05. If anyone needed convincing of the powerful effect of expectations on stock market prices, they need look no further than two of the stocks in my portfolio, Leadis Technology (LDIS) and Informatica (INFA).
After the bell yesterday, LDIS and INFA both reported earnings. Today the market punished LDIS severely and rewarded INFA handsomely.
LDIS daily chart
LDIS reported a second-quarter loss of $2.6 million, or 9 cents a share, compared to earnings of $6.2 million, or $0.24 per share for the same period a year ago.
"The Street" expected a loss of $0.06 per share, producing a nasty negative surprise of 16.7%.
The market punished LDIS.
INFA daily chart
INFA reported second-quarter earnings of $7.6 million, or $0.09 per share, compared to $1.0 million, or $0.01 per share for the same period a year ago.
"The Street" expected $0.08 per share, producing a positive surprise of 12.5%.
The market rewarded INFA.
Once again, the market gave a refresher lesson in why it is so risky to hold stocks during earnings season: The slightest surprise can lead to unexpected results.
