1) Company says it's going to make $1.00/share
2) "Analysts" says it's going to make $1.10/share
3) Company actually makes $1.05/share
4) OMG sell the stock!!1! it missed some arbitrary number!1
I'm a libertarian, but crap like this really irks me.
Compare and contrast with the following (too common, alas) scenario:
1) Student tells parents that he'll get a B on a course.
2) Parents just know that s/he can do better, so they expect A.
3) Student actually gets B+.
4) Student gets grounded, etc.
This would be different, since the grade that the student can "optimally" get from a course is determined outside of parents (simplistically speaking), so they are unjustified in having inflated estimations. That is, in this case, there's an actual quantity (the grade) that (i) is independent of the estimators and (ii) has a "true" value. Both of these assumptions fail for the stock example.
Another fallacy is, when reading news like "Markets slump, billions lost" to think that actually billions of dollars were lost. Money is lost when you drop it out of your pocket or when an asset is destroyed, e.g. by fire. In this case what is lost is the expectation of making money.
I'm just an engineer, this is my simplistic understanding of the matters.
So now, new information has come in that slightly changes the market's view of the company's future.
How else do you think it should work?
Before the earning, the stock is priced in at the value from 2). After the earning, the stock drops down to the price that's valued with the actual earning numbers, which is lower than 2). This should not be a huge surprise to anyone.
The apple case here is only slightly exceptional in that Apple is known for giving very conservative guidances, which is why the analyst's estimates are almost always higher than the guidance. In the past quarters, even that number was exceeded. It's just not the case here and the stock drops accordingly.
I do think there is likely potential for future growth given the extremely high guidance given for Q1, which knowning Apple, is still conservative.
disclosure: i'm long aapl
Fine for the Wall Street Journal, I guess, since those readers know what it means.
I guess I should be happy if this is comparable to the "Apple is doomed!" stories that used to be in vogue.