Why does Wall Street accept / embrace Non-GAAP numbers from companies with the worst financials (in turns of results)
I’ve always done my fundamental analysis based on two main numbers – pre-tax income and net income.
Yet it seems like the companies I look at with the absolute worst fundamentals and deteriorating businesses get away with using / reporting / leading with Non-GAAP EPS.
……and that’s the number Wall Street pays attention (and jumps on) while in the “fine print” below that result they are saying their net income is down 50% plus).
I know I sound cynical but are they just doing it to protect the stock price?
I’ve been watching a company from the short side (I have puts) and this has really baffled me. They just reported that their “Non GAAP EPS” is up 63% while their net income is down 52% – and the stock is soaring.
Wouldn’t net income be more telling about how the business is doing?
I’m just trying to understand why a kind of manipulated / made up non-GAAP metric can move a stock when something as tangible as net income doesn’t.
Does it come down to the face that we are just in a market that doesn’t care about fundamentals?
Submitted February 09, 2022 at 01:52PM by pjthejvbroker
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