No. of Recommendations: 7
TEAM, which is not a name discussed much on this board, just had a by all measures pretty decent ER yesterday, beating all estimates. Revenue grew 36%, earnings grew 40%. Yet it sold off sharply today.

In psychology, there is something called anchor effect. People tend to base what they view things (such as valuation) on where they were recently. If the P/S was 20 and now 14, that means it's cheap right now and great buying opportunity, right? Unfortunately, Mr. Market does not care about how we base our beliefs. The prices will go where supply/demand leads, and when there is a regime shift ("rotation"), where the valuations were at recently may no longer be relevant.

While people on this board maintain a focus on the business growth prospect of these companies (which is important), Mr. Market simply thinks that the same growth rate should be priced differently. Given that the broader economy has been slowing down (OT I know), it may simply take a long time for the animal spirit to return the tech sector.

So we are left with growth eventually catch up to the valuation, and at the valuation and growth levels, it leaves little margin for error. We better hope they grow like crazy (and produce earnings soon if not yet and grow earnings like crazy).

What do our favorite stocks upcoming ER need to be to avoid the same reaction as TEAM?

bashuzi
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