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 In Focus

For instance, specialty teen retailer Five Below Inc 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 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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