Earnings season can be full of surprises. A company can miss on earnings, but still do better than expected. As a result, shares may end up rallying!
The opposite is quite common too. A company can report fantastic earnings and growth, yet not meet expectations. That tends to result in a selloff in shares. In that case, however, there’s a buying opportunity as the company is clearly growing over time.
That seems to be the case with Zoom Technologies (ZM). The company reported a 367 percent rise in revenue from a year ago, and reported a profit. That following a 355 percent rise in revenue in the second quarter, and a 169 percent rise in April.
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Traders didn’t like that the rate of growth has started to slow. That was enough to send shares down double digits. But the stock has been so hot over the past year that the drop resulted in shares trading at prices that prevailed just a week ago.
Chances are, with the growth numbers still rising at triple-digit rates, shares will shake off this short-term fear and continue to trend higher in the coming weeks and months.
Action to take: The March 2021 $500 calls shed nearly half their value thanks to the earnings report. Now trading in the low $35 range, or $3,500 per contract, it’s an inexpensive way to control 100 shares as they continue their long-term uptrend. If shares return to their pre-earnings levels, expect a double in the trade.