Buy on expectations, sell on facts – this is a saying known by every trader. However, what are those “expectations”, and which of them are correct? This must be the hardest part of the whole saying because in the market there are always traders who support future growth of stocks and those who deny the perspective.
To find out what market players are waiting for, I recommend checking the words of those speakers that can be taken responsible for their words. In other words, in the case of a knowingly false forecast, either experts themselves or the company they represent can be brought to court for misleading investors, Such persons are usually top managers of companies. Normally, they deliver a speech on the day when the quarterly report is published and give a forecast for the next quarter, and forecast is exactly an expectation of the future.
Quite often, it so happens that quarterly reports turn out to be better than expected, yet at the press-conference, the management gives a weak forecast for the next quarter, and the shares start falling. This means, market participants always keep a close eye on forecasts.
You can also check forecasts of financial entities published on Finviz.com.
Today I will tell you about several companies the revenue of which is forecast to grow in the future and will show you how forecasts influence the stock price. Let us start with Plug Power.
Plug Power Inc.
On October 13th, analysts from Morgan Stanley (NYSE: MS) increased the rating of Plug Power Inc (NASDAQ: PLUG) and the target share price from 35 to 40 USD. The reasons for being this optimistic were new contracts of the company and expecting growth of revenue in the future. At this event, the share price of the company grew by 12% overnight.
It is quite difficult to make money on such a situation because in such circumstances, volatility in shares is rather high. Wait until the agitation subsides and start buying on the next day or a bit later. Growth of revenue is quite a lengthy process that will then be followed up by positive headlines about the company.
Looking on the chart, you will see that on October 13th, the shares leaped up by 12% but on the next couple of days the shares were falling; however, by now, the shares have grown by 40% more. Great profitability with minimal risks.
What is next?
On November 9th, Plug Power published a quarterly report that showed that the forecasts of expert turned out faulty. The loss per stock turned out to be 0.19 USD against the forecast 0.08 USD, which was 130% more than expected. The income also turned out to be inferior to forecasts. Such data must have ruined the stock price, but in fact, the shares declined by less than 1% over a trading session. he reason was the forecast of the management for the next quarter.
The management of Plug Power expects that in Q4, the results should be higher than in the previous years, reaching 153 million USD, while the loss on stock should drop to 0.07 USD. As a result, the shares kept selling and grew by 7% more. In such circumstances, the shares are likely to grow but try to catch them on a correction.
To sum up: the growth of the rating given by Morgan Stanley analysts and their forecast about the growth of revenue attracted the attention of investors to the shares of Plug Power, while the confirmations given by the management sped up the growth of the shares. Just wait for the results of Q4. By this time, the shares will have grown already, and if the forecast turns out to be correct, they will have already fallen because market players will be taking the profit.
And now – to companies that also announced an increase in their debts in the future.
Tapestry, Inc
Tapestry, Inc (NYSE: TPR) is an American company that specializes in luxury items. It owns such brands as Coach New York, Kate Spade New York, and Stuart Weitzman. The company sells its goods via a network of 1,450 shops, Internet sites, wholesales customers, and independent distributors. Tapestry was founded in 1941, and later changed the name for Coach Inc.
On November 11th, the company published a report for Q3, according to which the income of the company had grown by 26% against the same period of last year. Return on stock grew by 41% and reached 0.82 USD. Tapestry fully recovered after the crisis of COVID-19, and its revenue have been better than forecast for 6 months in a row.
And now the most important point: the management of Tapestry increased the forecast for 2022 from 6.4 to 6.6 billion USD of revenue and announced that would send 1 billion USD to stocks buyback.
When the quarterly report was published, the share price grew by 9%. The volume of trades grew almost two times, and volatility also increased.
In this situation, we should expect a minor correction, as in Plug Power shares, after which the growth of the shares can resume. One more stimulus to buying the shares is the approaching Christmas and New Year holidays that will push the revenue of Tapestry upwards.
Opendoor Technologies Inc
Opendoor Technologies Inc (NASDAQ: OPEN) is an online company specializing in residential real estate in iBuying. iBuying lets houseowners sell their houses without a broker or real estate agent, saving their money and time, avoiding problems and expenses that are characteristic of real estate transactions.
Opendoor Technologies buys houses at prices below market prices, makes some renovations, and sells it. The company provides its services to those who need to sell or buy real estate fast. According to the latest information, the company on average holds a real estate object for about 3 months, which means quite high liquidity. Opendoor has designed an application that allows for buying a house without actually visiting it. Buyers pay the same commission fee that they would pay if they used the services of a more traditional company that would buy them a house without their visit.
On November 10th, the company published a report for Q3, by which the revenue grew from 338 million to 2.27 billion USD. According to the report, the company managed to sell 5,988 houses, I,e, 72% more than in Q2, and bought 15,181 houses, which is 79% more than in Q2.
The management of Opendoor forecasts that the revenue in Q4 will grow and reach 3.1-3.2 billion USD. This is almost 1 billion USD than in Q3.
Currently, the shares of the company grew by 20%, but several days before the publication the shares of the company had been falling.
Zillow Group is leaving the iBuying market
The reason for the changes is the rival of Opendoor – a company called Zillow Group (NASDAQ: Z). The thing is, on November 3rd, the company announced that it was leaving the business. The report published by Zillow Group revealed a loss of over 320 million USD.
The company entered the iBuying market at the end of 2019, when the cost of real estate was high. The pandemic that followed in 2020 made the price of real estate fall, and, as director-general of the company said, future prices became hard to forecast. This meant that further activities of Zillow Group in the iBuying market became extremely risky.
Investors got scared that Opendoor might follow Zillow, and before the report was published, they started selling the shares. Yet things turned out not that bad. However, market participants remain somewhat wary about Opendoor.
Anyway, look at the situation from another point of view. Its rival Zillow left the market, hence, buyers will be working with Opendoor. This will be a good influence on Opendoor income, and Opendoor will be able to dump real estate prices because there is no company to stand in their way. As a result, the company will be gradually increasing its forecasts for the growth of revenue, hence, Opendoor shares will be growing.
Closing thoughts
The best option is to keep an eye on official statements of the management of companies. If they forecast growth of the revenue in the future, this always causes a good effect on the stock price. Sometimes, however, rating enterprises calculate the growth of the revenue of companies and make statements before officials speak up. In such cases, shares also react, and if the forecast gets confirmed, the shares will keep growing.
All in all, there is nothing difficult in looking for what market players are awaiting – just keep checking your news feed.
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