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It is one of the most frustrating things for any shareholder when the company they own stock in reports a beat of expectations, both in terms of earnings per share (EPS) and revenues, and yet the stock loses a percentage point or two, maybe more, in premarket trading. Sometimes there is an obvious reason, but quite often, the reasons for the drop that you hear on financial TV or read on websites seem a bit of a stretch. They give the impression of being excuses that highlight small things that really should be overshadowed by the overall picture.

Many Nike (NKE) shareholders may be feeling this way this morning. The athletic apparel giant released earnings after the market closed yesterday that showed EPS of $0.90 versus expectations for $0.81 on revenue of $12.23 billion versus the forecast $12.06 billion. Those are good numbers, and the good news didn’t end there.

Nike CFO Matthew Friend commented on consumer trends: “we’re not seeing signs of pullback at this point in time…”

One would think the stock would pop in response to those comments. Instead, we got this.

The kneejerk reaction to the headline EPS and Revenue numbers was a move higher, but that lasted only a few minutes. By the time the earnings call with analysts got underway at 5:00 pm, NKE was trading right around where it had been before the numbers, and the market was clearly waiting for some clarification on a couple of points. Obviously, they didn’t like what they heard when that came, and the stock fell out of bed during that call.

There are several reasons for the drop.

“Margins were lower than anticipated,” “shipping costs are still elevated,” “the supply chain is still disrupted,” and” there was a big inventory build,” are all things I have heard. They are all true to some extent, but lower margins are directly attributable to higher logistics costs, and anyone who has bought a gallon of gas or diesel recently could have told you that costs are still high. As for the supply chain, China has been in lockdown, at least some parts of it have been, and most of Nike’s products are made there. In that context, is an inventory build, presumably to ensure smooth supply to stores and to meet customer demand, should there be another setback in China, really a bad thing?

Taken individually, none of the reasons really hold up. They are either entirely predictable, inherently temporary in nature, or both. If predictable, they would have been built into estimates, and a beat shows that they weren’t as bad as was feared. If temporary, then the fact that despite them, Nike still reported a beat bodes well for the future. Still, the fact remains that the stock is lower, even as the major indices are indicating a higher opening this morning, so what gives?

The first thing to remember here is that Nike’s earnings came “off-season.” Most major companies report in a period one to five weeks after the end of each calendar quarter, but they are not required to do that. Some, like Nike, have financial years and quarters that don’t jibe with the calendar. Their last quarter ended on May 31 and they are reporting four weeks after that. That is perfectly normal, but it leads to a situation where they are the only big company reporting on that date, and thus their earnings attract more scrutiny. Given that, the mood of the market gets focused on that one set of numbers, and therefore gets exaggerated.

The problem with Nike’s numbers weren’t really the numbers. It was with how Nike has been valued over the last few years. It is seen as a growth company, even after all these years. Or at least it has been priced as one priced as one, with a trailing P/E of over 60 a year ago. That multiple has come down to be around 27 yesterday, but that is still well above the market average of 17.91 for the Dow and 20.43 for the S&P 500. And yet, after a big post-covid boost that pulled a lot of sales forward, growth has slowed this year and was actually negative on a year-to-year basis in the prior reported quarter.

Put simply, NKE has a problem that is common among stocks right now. It is not about the current performance of the company but is a realization that valuations at the end of last year had got way out of hand, particularly for stocks that gained a boost from covid or its aftermath. Unless economic growth continued, or even accelerated, they had to adjust back at some point.

Now that the Fed is actively trying to slow things down, adjustment is taking place. However, it is nowhere near over. Thus, NKE’s post-earnings move wasn’t really about earnings. It was just about the market receiving confirmation that growth is much slower than it was, and that stocks have to adjust to the new normal. Unfortunately, that means that the market overall may move lower at some point.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The following companies are expected to report earnings prior to market open on 06/28/2022. Visit our Earnings Calendar for a full list of expected earnings releases.

TD SYNNEX Corporation (SNX)is reporting for the quarter ending May 31, 2022. The business software company’s consensus earnings per share forecast from the 3 analysts that follow the stock is $2.52. This value represents a 26.00% increase compared to the same quarter last year. In the past year SNX has beat the expectations every quarter. The highest one was in the 1st calendar quarter where they beat the consensus by 12.03%. Zacks Investment Research reports that the 2022 Price to Earnings ratio for SNX is 8.64 vs. an industry ratio of 8.60, implying that they will have a higher earnings growth than their competitors in the same industry.

Enerpac Tool Group Corp. (EPAC)is reporting for the quarter ending May 31, 2022. The machinery company’s consensus earnings per share forecast from the 1 analyst that follows the stock is $0.29. This value represents a 3.57% increase compared to the same quarter last year. Zacks Investment Research reports that the 2022 Price to Earnings ratio for EPAC is 22.32 vs. an industry ratio of 15.20, implying that they will have a higher earnings growth than their competitors in the same industry.

Cognyte Software Ltd. (CGNT)is reporting for the quarter ending April 30, 2022. The internet software company’s consensus earnings per share forecast from the 2 analysts that follow the stock is $-0.04. This value represents a 157.14% decrease compared to the same quarter last year. CGNT missed the consensus earnings per share in the 1st calendar quarter of 2022 by -371.43%. Zacks Investment Research reports that the 2023 Price to Earnings ratio for CGNT is -133.80 vs. an industry ratio of -46.90.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The directors of a company tend to have a unique inside view into the business, so when directors make major buys, investors are wise to take notice. Presumably the only reason a director of a company would choose to take their hard-earned cash and use it to buy stock in the open market, is that they expect to make money — maybe they find the stock very undervalued, or maybe they see exciting progress within the company, or maybe both. So in this series we look at the largest insider buys by company directors over the trailing six month period, one of which was a total of $471.5K invested across 3 purchases by Noel Joseph Spiegel, Director at American Eagle Outfitters, Inc. (Symbol: AEO).

Purchased Insider Title Shares Price/Share Value 06/10/2022 Noel Joseph Spiegel Director 20,000 $12.00 $240,000.00 06/16/2022 Noel Joseph Spiegel Director 10,000 $11.65 $116,500.00 06/17/2022 Noel Joseph Spiegel Director 10,000 $11.50 $115,000.00

Spiegel’s average cost works out to $11.79/share. Shares of American Eagle Outfitters, Inc. were changing hands at $12.46 at last check, trading off about 2.2% on Tuesday. The chart below shows the one year performance of AEO shares, versus its 200 day moving average:

Looking at the chart above, AEO’s low point in its 52 week range is $11.43 per share, with $38.05 as the 52 week high point — that compares with a last trade of $12.46.

The current annualized dividend paid by American Eagle Outfitters, Inc. is $0.72/share, currently paid in quarterly installments, and its most recent dividend has an upcoming ex-date of 07/07/2022. Below is a long-term dividend history chart for AEO, which can be of good help in judging whether the most recent dividend with approx. 5.7% annualized yield is likely to continue.

Free Report: Top 7%+ Dividends (paid monthly)

Click here to find out which other top insider buys by company directors you need to know about »

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Investors in SPDR S&P 500 ETF Trust (Symbol: SPY) saw new options become available today, for the August 3rd expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the SPY options chain for the new August 3rd contracts and identified one put and one call contract of particular interest.

The put contract at the $355.00 strike price has a current bid of $2.87. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $355.00, but will also collect the premium, putting the cost basis of the shares at $352.13 (before broker commissions). To an investor already interested in purchasing shares of SPY, that could represent an attractive alternative to paying $388.96/share today.

Because the $355.00 strike represents an approximate 9% discount to the current trading price of the stock (in other words it is out-of-the-money by that percentage), there is also the possibility that the put contract would expire worthless. The current analytical data (including greeks and implied greeks) suggest the current odds of that happening are 99%. Stock Options Channel will track those odds over time to see how they change, publishing a chart of those numbers on our website under the contract detail page for this contract. Should the contract expire worthless, the premium would represent a 0.81% return on the cash commitment, or 8.20% annualized — at Stock Options Channel we call this the YieldBoost.

Below is a chart showing the trailing twelve month trading history for SPDR S&P 500 ETF Trust, and highlighting in green where the $355.00 strike is located relative to that history:

Turning to the calls side of the option chain, the call contract at the $405.00 strike price has a current bid of $4.88. If an investor was to purchase shares of SPY stock at the current price level of $388.96/share, and then sell-to-open that call contract as a “covered call,” they are committing to sell the stock at $405.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 5.38% if the stock gets called away at the August 3rd expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if SPY shares really soar, which is why looking at the trailing twelve month trading history for SPDR S&P 500 ETF Trust, as well as studying the business fundamentals becomes important. Below is a chart showing SPY’s trailing twelve month trading history, with the $405.00 strike highlighted in red:

Considering the fact that the $405.00 strike represents an approximate 4% premium to the current trading price of the stock (in other words it is out-of-the-money by that percentage), there is also the possibility that the covered call contract would expire worthless, in which case the investor would keep both their shares of stock and the premium collected. The current analytical data (including greeks and implied greeks) suggest the current odds of that happening are 99%. On our website under the contract detail page for this contract, Stock Options Channel will track those odds over time to see how they change and publish a chart of those numbers (the trading history of the option contract will also be charted). Should the covered call contract expire worthless, the premium would represent a 1.25% boost of extra return to the investor, or 12.72% annualized, which we refer to as the YieldBoost.

Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 252 trading day closing values as well as today’s price of $388.96) to be 20%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.

Top YieldBoost Calls of the S&P 500 »

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.