The stock of Broadcom Ltd (NASDAQ:AVGO) closed at $241.73 losing 0.62% in yesterday’s trading session. This company has today made an announcement outlining that its Board of Directors approved a quarterly, interim cash dividend of $1.02 per ordinary share. The holders of restricted exchangeable limited partnership units will all be eyeing the $1.02 figure for each REU and it will be upon the partnership to carry out the corresponding distribution.
On Thursday, the company beat quarterly estimates for revenue and earnings per share estimates. This together with raising its guidance did not stop the large number of its investors from sending its stock almost 4% lower. One analyst spoke in relation to the matter outlining that there were complaints emanating from the investors who thought that the beat/raise was less pronounced compared to the others in the past six quarters.
Analysts have advised shareholders to remain put, however, it is critical to note the sell off and that is for some two particular reasons.
Firstly, business dynamics is a reality that each and every business is from one point or the other compelled to face up to. Times are fast changing in the business world and they are associated with some frequent upside surprises during quarterly financial reports. It has changed to become a business world of the low-ball analyst estimates and there has been the growing need to find out which is the best measure of a true surprise.
True surprise shouldn’t be determined basing on whether or not the results beat the consensus. Instead, it should be determined through investigating whether or not the investors cheer by the end of the day. If one should go by this, it is quite obvious that Broadcom missed. However, on its own this doesn’t pop up as some sort of a big deal.
Secondly, Investor finickiness signals that a given company’s shares are less cheap than they were. For the year ending October 2017, the provider’s shares traded at 14-times projected free cash flow. Currently, they stand at 16 times the following year’s free cash estimate. The company’s spokesperson opined, “That is still reasonable relative to the S&P 500 at nearly 20 times forward free cash flow.”