One more report to read tomorrow and then the last big week of the 2Q19 season is over. Despite a few extreme reactions, what's remarkable is how far ahead we are, all things considered.
Since the Big Banks started the cycle on July 14, the S&P 500 is down 2%. Our stocks that have reported their quarterly numbers so far have run the spectrum between Square with its 18% decline and Roku, which soared 21% yesterday, but in the aggregate the BMR universe has gained a little ground. Some of the reports have been rewarded. Others have not, even when the numbers are better than what investors said they wanted to see.
TPI Composites (TPIC: $21, down 17% this week) illustrates the market's contrarian impulses. As we said yesterday, expectations were on the low side but management still turned a difficult season into a shock profit (after initially predicting a loss), and 40% revenue growth. Guidance for 2020 came up a full $100 million as well. Nonetheless, the stock plunged yesterday and nobody can make a compelling case why.
As far as we're concerned, this is the kind of dip that makes sense to buy. When the fundamentals are weak and a stock climbs anyway, we get nervous . . . the upside is unsupported by anything tangible, so once the mood shifts there's nothing to hold it up. But in the opposite scenario, the downside is unsupported and when the mood shifts, there's nothing holding a stock like TPI Composites down. Sooner or later, this one will recover.
Likewise, Dropbox (DBX: $21, down 7%) gave us everything we wanted, from the trailing numbers ($401 million in revenue, $0.10 per share in profit) to higher guidance for the remainder of the year. People can talk about how adding only 1.7 million paid users since last summer feels sluggish, but get real: Management still captured 200,000 more accounts than anyone on Wall Street expected, charging them an average of $40 per month. If that's a disappointment, we aren't convinced anything would have made the market happy.
Everything here was fine. Revenue guidance for the full year came up a bit, setting the stage for steady growth ahead. Dropbox isn't expanding at an exponential rate, but it isn't betting the store and losing either. As would-be competitors in the Data Storage market run out of cash, this one is generating enough cash to fund operations and more. This looks more than ever like one of the long-term winners. Let the market have its tantrum. Instead of being priced for perfection and failing, Dropbox gave us better than perfection and is now priced for failure.
Is it shocking? We've seen it again and again this season. The companies are doing well, often better than we expected. But as long as the market is in a fragile mood, simply reporting your performance on the wrong day can get you hammered down. Again, we'd rather have this than a fake rally driven by irrational exuberance. The mood changes. Numbers are real.