Past Results Don't Guarantee Future Performance: 2 Stocks With Solid Earnings Moving Lower On Weak Guidance

It can be confusing to investors when a company reports strong quarterly earnings report, but its shares get punished due to a weak guidance.

It does, however, make sense. Part of a company's stock valuation includes expectations moving forward. In many cases, Wall Street analysts will revise their valuation models to include a now lower than expected future performance, which affects not only the bottom line but the stock's value today.

Five Below

For instance, specialty teen retailer Five Below Inc (NASDAQ: FIVE) reported its second-quarter results after Wednesday's market close. The company said that it earned $0.18 per share in the quarter on revenue of $220.1 million. This represents a top- and bottom-line beat as Wall Street analysts were expecting the company to earn $0.17 per share on revenue of $219.5 million.

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Looking forward to the third quarter, Five Below said it expects to earn $0.09 to $0.10 per share on revenue of $199 million to $202 million. This doesn't compare favorably to Wall Street's estimates of $0.10 per share and $203.89 million.

Five Below also guided its full-year fiscal 2016 earnings per share to a range of $1.28 to $1.32 on revenue of $1 billion to $1.009 billion. Similarly, the company's guidance implies the potential of falling short of the $1.31 per share analysts were modeling on while the high end of management's guidance still falls short of the $1.01 billion analysts were modeling.

Even though some Wall Street analysts encouraged investors to become buyers on the stock's weakness, shares dipped more than 5 percent.

Ambarella

Shares of Ambarella Inc (NASDAQ: AMBA) were trading lower by nearly 7 percent on Friday after the company reported a better-than-expected second-quarter earnings print. However, the company's guidance was cited as a reason for the strong selling activity.

Ambarella, a maker of components that are used in drones and action cameras, reported "strong" quarterly results, at least according to Matthew Ramsay of Canaccord Genuity.

Related Link: Canaccord Takes Ambarella's Strong Results, Conservative Guidance

Ramsay pointed out that Ambarella's top- and bottom-line results were above what analysts were expecting. However, the analyst stated that the company's guidance is a headwind.

Ambarella guided its third-quarter revenue to be in a range of $95 million to $99 million and expects its full-year fiscal 2017 revenue growth to be flat to down 5 percent. The analyst suggested that the guidance is conservative and reflects various "near-term hurdles."

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