The quarterly returns season is coming to an end and with almost 70% of the companies on the S&P 500 index (SPX) having reported their earnings, it's time to examine what really matters to investors.
Great emphasis is always placed on the performance of companies in relation to analyst expectations which also seems to influence investors. The emphasis on beating analyst forecasts is possibly very overrated because they might get it wrong for various reasons, one of which could be companies lowering their guidance in order to lower analyst forecasts and thus beat the forecast making investors happy.
Focusing on sales growth is a very good measure which many investors use as a measure of the health of the reporting company. Sales growth should however be measured in terms of growth per share in the event of a dilution of shares having taken place for whatever reason during the period under review. This would include any acquisitions as well as a reduction in the share count as a result of share buy backs.
The situation around Apple stocks is very confusing when taken in the perspective of having beaten the figures in the same period last year, not only in respect of total sales by a big margin, but also in terms of sales per share which showed an increase of 36%, beating analyst forecasts. Earnings per share increased by 45% from $1.28 to $1.85 while a majority of analysts giving it a “buy” rating and a twelve month target consensus price of $146.19, 21% above its current price of around $121.30.
Despite all these positives, Apple shares have been on a downward slide since the release of its quarterly report on 21 July. Investor sentiment shows that despite good figures and a guidance indicating further growth, indications are that they are not happy with Apple.
Goldman Sachs Group Inc. on the other hand delivered unimpressive returns as a result of a big increase in the contingency for legal costs, but still enjoys far greater investment support than Apple.
Some of the companies with the quickest quarterly sales per share on the SPX include D.R. Horton Inc. (DHI, -1.72%), Apple Inc. (AAPL, -0.55%), Gilead Sciences Inc. (GILD, +0.47%), Goldman Sachs Group Inc. (GS, +0.71%) and Facebook Inc. Class A (FB, +0.94%).