Market Fever

Call me naive, but it is difficult to comprehend how the market reacts to earnings. Take for instance this stock in my portfolio, NutriSystems Inc (NTRI). A provider of nutritional portion controlled meal program, it reported a 69% increase in second quarter profits. Yea!! 69%. Many may argue that for a small company with a market cap of around 2 billion, 69% is good but not particularly impressive. But for one, it easily beat the analyst estimates. Let me put some figures in place to corroborate the immature market sentiment. S&P 500 posted average profit gains of about 4% in the first quarter this year. Russell 2000, a small cap index, shows an EPS growth of 15.21 over 5 years. NTRI has a EPS growth rate of 81% over a year. It's target price by most analysts is around 80. With all this said, during market hours the stock fell 6%. But disaster struck when the earnings were announced, and the stocks fell 15% in after-hours trading.

Another instance. Merill Lynch (MER). It delivered another strong quarter amidst sub-prime concerns and what not. It's still falling and guess what. It's P/E is significantly smaller than its EPS. I have seen P/E's of financial companies average at 10 or some, but none are lower than it's EPS.

Let us see what Apple earnings has in store tomorrow!!!!