Every company handles earnings season differently. Some companies will look to avoid big swings in earnings. Others won’t. And when it comes to guidance, some companies will always look at the glass as half full, others as half empty.
When a company reports great earnings but is cautious on guidance, shares may sell off. If that happens, investors should get in, because over the long term, strong earnings are what drives shares higher.
That situation just happened with software giant Adobe (ADBE). The company reported a record revenue, but was cautious on guidance.
Plus, Adobe still hasn’t convinced Wall Street on its AI plans, which could upend some of its services.
Shares saw a 12% drop on Friday after announcing earnings, but Adobe has still beaten the overall market this year.
Action to take: There’s room for Adobe to recover from its guidance-related selloff in the coming weeks.
Shares can likely trend higher as long as Adobe can continue to grow its earnings, and in time should fend off some of the market skepticism. At current prices, Adobe does not pay a dividend.
For traders, the longer-term uptrend will likely continue following this earnings drop.
The June $550 calls, last trading for about $16.75, could see mid-to-high double-digit returns in the coming weeks. Traders may want to take a profit following any big one-day jump higher in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.