EarningsBeats Digest

Published: Wed, 02/03/21

EarningsBeats.com Digest for February 3, 2021

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This Is How Unfair Earnings Season Can Be

Ok, so you've done your homework and you realize that Agilysys (AGYS) is outperforming its computer hardware ($DJUSCR) peers and racing higher into earnings. The group has been strong and AGYS has been a tremendous performer within the space. It leads you to one conclusion. AGYS is going to have a blowout earnings report. After all, AGYS just ran from a January 4th closing price of 37.12 to 51.30 three weeks later and just before earnings are released. Wall Street LOVES the stock, right? Then comes the best news of all. Revenues beat ($36.7 million vs. $36.1 million). Earnings beat ($.23 vs. $.17). Unfortunately, AGYS management lowers revenue guidance for its next quarter and Wall Street abandons the stock:

I've said this many times before and I'll say it again. I'd rather have a company beat its estimates in the current quarter and lower future guidance than to miss its current quarter estimates and raise future guidance. It comes down to a trust factor. Don't build me up all quarter and then drop a bomb when results come out. Tell me up front that we need to be cautious and then beat again next quarter. Under promise and over deliver. That works much better with Wall Street. After the initial shock of the lowered guidance, AGYS quickly fell through its 20 and 50 day moving averages, but found support near 37. Previous lows had held there and this one did as well. AGYS has since bounced 6 bucks off the low, but it was yet another painful reminder of what can happen when buying a stock into its earnings - no matter how good the chart looks.

Happy trading!

Tom Bowley, Chief Market Strategist

EarningsBeats.com

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