[gph]

It's always amazed me that a company's outlook can look bad even though they're profit/revenue is growing, just because said growth isn't as big as it was in the past.

I can sort of see why from an economics perspective, the stock price is based on profit growth projections and if those projections don't hold up the price will naturally drop.

But it still seems crazy that we continually expect and pressure our public companies into growing their profit at a rate higher than it was previously growing, otherwise they aren't hitting performance expectations. I'm sure someone with more economics knowledge can explain it in a way that makes sense, but to me that seems like a logical fallacy. We expect what amounts to continual exponential growth.

Edit: Typos

[pron]

The reason for that is simply that expectations are already factored into the stock price. If expectations aren't met then the stock is overvalued.

[veyron]

The question you have to ask is how they are making money. If it costs 2 dollars to make a dollar in revenue, then you are actually losing money.

There's no guarantee that they will continue to make money if they tone down their spend (for example, reducing ad spend), which is why the revenue / profit quality matters.

[lmm]

See http://www.forbes.com/sites/stevedenning/2011/11/28/maximizi... , which featured here a month or two ago.