Page 25 - ARUBA TODAY

BUSINESS Monday 21 august 2017
A25

Better than expected, barely good enough: Profits and stocks

least a decade. One of the main ways ana-
When a company has lysts use to measure wheth-
reported better-than-ex- er stocks are expensive is
pected earnings but fallen to compare their price to
short of forecasts for rev- corporate profits. The S&P
enue, its stock has tended 500 is now trading at 20.7
to do worse than the rest times how much its com-
of the S&P 500, according panies have earned over
to BlackRock. And when the last 12 months, accord-
a company has missed ing to FactSet. That’s more
on both measures? Much expensive than its median
worse. At first blush, such price-earnings ratio of 15.6
a reaction may be surpris- over the last decade.
ing. Stock prices can move Now that strong profit
up and down for many growth has returned, it may
reasons in the short term: be mere validation for the
whatever the president is gains S&P 500 index funds
tweeting about, what cen- have already made. And
tral banks in far-flung cor- if corporate profits contin-
ners of the world are doing ue to rise faster than stock
or the latest change some prices, they’ll look less ex-
hedge fund has made to pensive.
An American flag flies over a Home Depot store location, in Bellingham, Mass. The retailer made
more in profit from May through July 2017 than any other quarter in its history, and its 14 percent its trading algorithm. But With the Federal Reserve
rise in earnings per share was stronger than analysts expected. Home Depot at the same time over the long term, stock raising interest rates, many
raised its profit forecast for 2017 and reported higher revenue than Wall Street forecast. Even still, prices tend to track close- analysts expect the mar-
Home Depot’s stock slid 2.7 percent after the report. ly with corporate profits. ket’s price-earnings ratio
(AP Photo/Steven Senne) When companies are mak- to creep lower from its lofty
By STAN CHOE lined up to report how companies have typically ing more money, investors heights. At the least, many
AP Business Writer much they earned during done 1.14 percentage are willing to pay more for are telling investors to ex-
NEW YORK (AP) — Here’s the spring. Companies in points better than the S&P each of their shares. pect the stock market to
how much hope and ex- the Standard & Poor’s 500 500 the day following its re- This time may be different rise no faster than corpo-
pectation has been built index are on pace to re- lease, according to Gold- because stock prices had rate earnings.
into the stock market: Big port one of their strongest man Sachs. But through already climbed so much The good news is that Wall
companies are healthy quarters in years. Earnings mid-August of this reporting in anticipation of higher Street is expecting profit
and making fatter profits per share were likely up season, the performance profits ahead. Even when growth to continue in the
than Wall Street expected, more than 10 percent from edge has been virtually nil profits were falling early last second half of this year,
yet it’s barely enough to a year earlier, better than at 0.03 percentage points. year, the S&P 500 index was though maybe at a slower
keep the market from fall- the 7 percent that analysts That’s the lowest level in at still holding steady or rising. rate.q
ing. Consider Home Depot, had penciled in when the
which gave an earnings quarter ended, according
report on Tuesday that was to FactSet. Despite those
seemingly fantastic. The re- gains, S&P 500 index funds
tailer made more in profit are nearly exactly where
from May through July than they were before the heart
any other quarter in its his- of earnings reporting sea-
tory, and its 14 percent rise son began in mid-July.
in earnings per share was “Equity markets have
stronger than analysts ex- greeted positive earnings
pected. Home Depot at reports largely with indiffer-
the same time raised its ence,” strategists at Black-
profit forecast for this year Rock wrote in a recent re-
and reported higher rev- port. “Investor sentiment
enue than Wall Street fore- shows more signs of fatigue
cast, all of which should be than euphoria, even as
kibble for investors raven- stock markets have repeat-
ously looking for growth. edly reached new heights
Even still, Home Depot’s this year.”
stock slid 2.7 percent after Usually, when a company
the report. reports better earnings than
That reaction hasn’t been analysts expected, it sends
too far off the norm re- the stock higher, at least
cently, as companies have for a day. Since 2006, such