Did you catch ? Jim Cramer thinks there's an important lesson for Apple investors.
"When Priceline released numbers it blew away the revenues," Cramer said. Specifically, revenue spiked 26 percent.
"But then it that was so conservative it was viewed as a cut versus Street expectations." The company said it expected an adjusted profit of $19.60-$21.10 per share for the third quarter ending Sept. 30. Analysts on average were expecting $21.28 per share.
Immediately sellers pounced on the stock, sending it substantially lower.
"Then, about 80 minutes later, on the earnings call, Priceline indicated that business was growing by leaps and bounds," Cramer noted. Shortly thereafter, shares reversed and marched higher.
"This pattern happens almost every time the company reports," Cramer explained.
Cramer calls the phenomenon UPOD or under-promise and over-deliver. "The forecast simply reflects the non-promotional nature of the company." That is, Priceline doesn't want to generate expectations that are unreasonable.
And Cramer says Priceline is hardly the only company that approaches its earnings release with this kind of conservative slant. He says, Apple does it too, and again the Street reacts inappropriately.
"I have always felt that Apple tried to set reasonable expectations that are often at odds with analysts who are sporting wild high estimates. That's caused many a downdraft, all of which have, in the end, proven to be buyable," Cramer said.
Cramer has seen the same kind of behavior from the managements of CBS, Johnson & Johnson and Celgene, too; all have under-promised and over-delivered. "I also find that Howard Schultz and the gang at Starbucks likes to keep expectations reined in."
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All told, Cramer says it's imperative that investors know which companies are inclined to approach their forecasts through a conservative lens. Although pros seem to forget from one quarter to the next, "It is important for you to file it away," Cramer said.
If you can move in and out of positions with aplomb, this knowledge may create a trading opportunity. And if you're a long-term investor, it can prevent an unnecessary panic attack.
"Some companies do things differently when it comes to reporting their earnings. Some like to be conservative," Cramer said. You should know who they are.
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