Reading time: approx. 5-6 minutes
After quarterly figures, I regularly read the same astonishment here: the figures were good - why is the share price falling?
This question assumes that share prices react to figures. They don't. The market evaluates expectations in relation to price, not sales or profits in isolation. The decisive factor is the deviation between what is delivered and what the share price had previously assumed.
Expectations are not created in the earnings call. They are in the share price, or more precisely in the multiple. A company that trades at 30 or 40 times forward earnings implicitly carries very specific assumptions: high, preferably consistent growth, stable or rising margins, little operational friction and ideally additional upside potential. The higher this valuation level, the narrower the expectation corridor becomes. This is not a question of sentiment, but of valuation mechanics. If this corset no longer fits even slightly, a multiple adjustment is enough - and the share price reacts, even if the figures are objectively strong.
This is precisely why "good figures" are often not enough for highly valued companies. A quarter can be operationally convincing and still trigger a sell-off because it only confirms what was already priced in. In such situations, nothing has to change fundamentally. It is enough that growth rates normalize minimally, margins do not increase further or the guidance is formulated more cautiously. The market is then not renegotiating the business model, but the price it is prepared to pay for it.
A very clear example of this is NVIDIA. Operationally, the company has been delivering exceptional results for quarters: explosive demand in the data center, high gross margins, massive cash flows. Nevertheless, there have always been significant setbacks after figures. Not because the figures were bad, but because they were no longer clearly better than what the market had already assumed. With such valuations, "strong" is simply not enough - the bar is set at "even stronger". The business model remains intact, but the price is being readjusted.
I therefore approach earnings differently today than I used to. I am less interested in whether the consensus will be beaten, but rather whether what is delivered is sufficient to support the existing valuation. I try to understand which narrative the market is currently playing and which key figure is in focus. If growth is the narrative, efficiency alone is of little help. If cash flow is in demand, pure sales beats fall flat. I become particularly cautious when a share has a very clear narrative, is very widely loved and has a very high valuation. Then there is often less room for positive surprises than many people think.
This logic is currently particularly evident in several hot topics.
In the AI and semiconductor environment, the valuations of many companies are so high that even very strong figures hardly have any potential for surprises. Growth is assumed; sustainability, investment cycles and margin stability are crucial. Accordingly, the market reacts nervously to any hint of normalization. Typical examples from this environment are
$NVDA (+2,51 %) (Nvidia), $AMD (Advanced Micro Devices), $AVGO (Broadcom), $ASML (ASML Holding) and $INOD (Innodata).
In the software and SaaS sector, the focus is shifting noticeably away from pure sales growth towards free cash flow, efficiency and return on capital. Companies can beat sales and still fall if margins or cash flow do not keep pace. The valuation grid has changed - and many reactions to figures can be explained in precisely this way. Examples of this are
$MSFT (Microsoft), $CRM (Salesforce), $NOW (ServiceNow), $SNOW (Snowflake) and $ADBE (Adobe).
Electromobility and structural growth are particularly good examples of how a narrative can tilt. In the past, the focus was on unit sales and growth, whereas today the market is more focused on margins, price pressure and capital intensity. Figures that would have been celebrated a few years ago are losing their impact because they no longer address what is currently valued. Typical representatives of this area of tension are
$TSLA (Tesla), $RIVN (Rivian), $LCID (-5,26 %) (Lucid Group), $BYDDY (BYD Company) and $9866 (NIO).
While high valuations and ambitious cash flow expectations in the software and SaaS environment mean that even decent quarters can quickly disappoint, the opposite is often the case with industrial and infrastructure stocks: lower expectations, more defensive positioning and therefore significantly more room for positive surprises after the figures. Here, stability or a slight improvement is often enough to trigger a revaluation. Examples of this are
$CAT (Caterpillar), $DE (Deere & Company), $HON (Honeywell) and $VRT (Vertiv).
For me, all this boils down to a sober but crucial realization: the market does not ask whether a company is good after the figures. It asks whether what was delivered was better, worse or exactly what the price implied. The higher the valuation, the tougher the test. Good key figures are necessary, but not a sure-fire success. They only work in conjunction with expectations and price.
Outlook:
The next part will deal with the flip side of this logic: why shares can rise after poor figures - and what role fear, positioning and asymmetric expectations play in this.
