Earnings season is in full swing. Investors have been willing to reward companies with strong guidance, and punish those with weak guidance. However, not all guidance is created equal. It’s a future estimate after all.
Understanding why a company may struggle in the future can give a better understanding of whether or not a company has been fairly or unfairly punished when the market sends shares into a selloff.
For instance, tech giant Microsoft (MSFT) sold off 6% on Thursday following earnings. The company’s web services division, Azure, was softer than expected. However, Microsoft noted that the softness was an inability to keep up with demand for AI data center services.
Microsoft has been an underperformer in the Mag 7 space, with shares up less than 10% over the past year.
However, revenues are up 16% over the past year and earnings are up 11%, indicating that the big-tech company can still continue its path of growth.
Action to take: Microsoft shares are likely oversold in the short-term following their post-earnings drop.
Shares can likely recover most of their recent decline in the weeks ahead. Longer-term, investors should watch Microsoft as a company to accumulate during bear markets.
For traders, the March $430 calls, last trading for about $8.00, could likely see mid-double-digit returns or better on a rebound in the coming weeks.
Disclosure: The author of this article has a position in the company mentioned here, and does not intend to further trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.