Pulled this little gem of information from the website of the American Association of Individual Investors (AAII):

How often have you heard of a stock price falling on the announcement of increased earnings? Or, in these times, an Internet stock leaping up after reporting negative earnings per share? In these instances, actual earnings did not turn out as expected. And, like the presidential primaries, expectations play a key role in determining if a stock's price "gains" or "loses" when actual earnings are reported.

Investors quickly learn that the market is forward-looking. Security prices are established through expectations, and prices change as these expectations change or are proven incorrect. In the last 10 years, we have seen a significant increase in the services that track and analyze expected earnings per share estimates.

Services such as I/B/E/S, First Call, Nelson's, Standard & Poor's, and Zacks provide consensus earnings estimates by tracking the estimates of thousands of investment analysts. Tracking these expectations and their changes is an important and rewarding strategy for stock investors.

Earnings Surprise

In using earnings estimates, the first rule to keep in mind is that the current price usually reflects the consensus earnings estimate. It is common to see price declines for stocks that report earnings increases from the previous reporting period because in many cases, while the actual earnings represent an increase, the increase is not as great as the market had expected. Earnings surprises occur when a company reports actual earnings that differ from consensus earnings estimates.

In much the same way, a positive report (even though it is good news) can have a negative effect on the PPS of a stock if that news doesn't meet the prevailing expectations at that time. I believe this is what we are experiencing with SFMI after the release of Roger Scammel's update . . . simply put . . . good news that didn't meet the high expectations of some of our fellow shareholders. Hang in there . . . and you'll be glad you did.

jdub