Mad Money

Great expectations: Cramer's story of stocks

Before you put your next dollar in the market, Cramer would like to tell you a little story. Gather round. It's a good one. He calls it 'Great Expectations.'

No, Cramer isn't talking about the Dickens classic. This is a tale of expectations and how expectations move stocks

That is, a company can report a strong quarter but if expectations are extremely high the stock will sell-off.

Cramer thinks Nike falls into this category.

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Shares of Nike traded in negative territory on Friday, despite .

"They only beat by a penny," Cramer explained. "It just wasn't enough." Specifically, Nike reported net income of $537 million, or 59 cents per share. Analysts had expected 58 cents a share according to Thomson Reuters.

However, Cramer believes fundamentals remain quite strong.

"The company has strong demand for its products across the board, excellent gross margins with an amazing performance in Western Europe, with 15% revenue growth and 23% futures growth, the best predictor of how the company will do."

"Following these earnings expectations have now come down and to me that makes it safe to buy. "

Cramer also cited Tibco Software as another expectations story.

Shares fell over 15% after the company said fiscal fourth-quarter profit slipped 8.7% as the cloud computing platform provider's rise in expenses masked a jump in revenue. However, the company provided current-quarter guidance that missed Wall Street estimates.

Results called momentum into question.

"Tibco has become hit or miss. They're hot one quarter and cold the next," Cramer said. Wall Street tends to punish a stock like that.

Continuing with the idea of expectations, they can also drive shares higher too.

Cramer said the advance in Red Hat is an example of that phenomenon. "Investors were just too cynical," Cramer said. ""Red Hat was loathed for that last quarter miss and had no expectations whatsoever."

Yet, when Red Hat reported, it showed revenues increased 15.4% year over year to $396.5 million ahead of management's guided range of $381.0 million to $384.0 million.

By the close shares had surged more than 15%. "Those are the kinds of stories I'm always looking for," Cramer added.

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Like every good story, there's a moral to this take of expectations..

As powerful as fundamentals can be, other catalysts move stocks, too. That's why it's critical to do homework and make yourself aware of Street expectations.

Call Cramer: 1-800-743-CNBC

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