Amazon’s earnings missed Wall Street’s consensus estimate by the largest margin since at least 2001. History shows investors won’t be so quick to shake this one off, despite the faith in the free spending ways of CEO Jeff Bezos.
Using hedge fund analytics tool Kensho, CNBC looked at what happened to Amazon shares in the weeks and months after large earnings misses. There hasn’t been a negative surprise this big going back to 2001, according to an earnings database from Bespoke Investment Group. Therefore, we defined a big miss as falling short of Wall Street estimates by 10 cents or more.
There have been six occasions in the last 16 years of a miss larger than 10 cents. The last time such a miss occurred was October 2016 and the first time Amazon missed by this magnitude was 2011. (On Thursday, Amazon said earnings last quarter were 40 cents a share, versus a consensus estimate for $1.42, according to Thomson Reuters.)
The day after such an earnings miss, if you bought on the close just before the earnings were released and sold on the close the next day, you lost on average 2.9 percent, according to Kensho.
By no coincidence, Amazon is down exactly 2.9 percent in premarket trading Friday.
So now let’s look at what historically has occurred if you bought on the close the day after those big earnings misses (Friday) and held for longer time periods.
One week later, Amazon shares are 1.71 percent lower, on average, Kensho shows.
One month later, the shares start to pick up, but history has shown this upswing won’t last.
Two months later, the shares are underperforming the market again, on average.
By the time we are three months out and Amazon has likely reported another quarter of results, the stock gets back to its overperforming ways, history shows.
Bottom line: This is not a time for long-term investors to panic, but traders may want to wait at least a few days and maybe weeks for a better entry point, if history is any guide.
Disclosure: NBCUniversal, the parent of CNBC, is a minority investor in Kensho.