Strong Operational Performance Trumps Weak Guidance and Creates Buying Opportunity

One lingering effect of the pandemic has been weak guidance from companies when reporting earnings. Many are still deferring from making forward-looking statements at all, and the market prefers to hear a rosy picture. Without it, a company may even sell off when it reports solid earnings.

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  • Case in point? Oracle (ORCL). The tech giant saw triple-digit growth in its cloud infrastructure business, yet provided weak guidance, leading to a drop in shares.

    Even with a post-earnings drop, shares are still beating the stock market. And with 32 percent profit margins, it’s a sign that tech is still holding up as an optimal place to be. Oracle has beaten its earnings estimates in all 4 of its prior quarters, a sign that guidance may be conservative.

    Action to take: Shares look attractive following the selloff, which still leaves the stock in a strong uptrend over its 50-day moving average. Investors may like shares, given the 1.6 percent dividend yield, and the company’s history of raising its dividend in recent years.

    Traders should expect the stock to recover quickly from its lackluster guidance this quarter. The September $85 calls, going for about $2.25, offer traders a high double-digit return potential in the coming weeks as shares recover. The option even stands a solid chance of moving in-the-money before expiration.

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    Disclosure: The author of this article has no position in the stock mentioned here, but may make a trade in this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.