Financial literature would have you believe that the present value of a stock is equal to the present value of its futures earnings discounted at the appropriate cost of capital rate. As I like to point out, those adjustments to that discounted flow, tend to happen rather violently.
A case in point is Austin based Whole Foods WFMI. Earnings for their fourth quarter were 29 cents up from 23 cents the year before. But the earnings rate of growth is decelerating, causing Wells Fargo to drop their projection on the stock price from $77.50 to $43. That bit of information came a little late if you were still a recent stockholder this morning.
Click on the chart at left to view a 22% loss in one day, er rather morning as the news of yesterday’s earnings increase but accompanying deceleration set in. As you can see, stock prices are dependent on FUTURE expectations, which sometimes get dialed in very quickly. So earnings are important but so are trends and where a company stands in its industry group.
In relations to a previous story about Dell, which was featured in another negative article on the Oct 2006 Texas Monthly, here is a look at Dell Hell. Gee when it rains it pours from Austin to Beijing.
DLE
Professor Elam 
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