Earnings news from two pizza chains vividly shows how to consistently make money in the stock market.
Papa John’s International Inc. (PZZA) +2.24%reported earnings and shares spiked about 20%. Domino’s Pizza Inc. (DPZ) +0.06%reported earnings and shares promptly fell about 9%.
Metrics
The two companies are similar. Both companies trade at a PE of about 21. Sales of both companies are growing at about 6.1%. Domino’s net margin is 5.4% compared to 5% of Papa John’s. Revenue of Domino’s is $384.6 million compared to Papa John’s $331.3 million.
Earnings
Papa John’s reported earnings of 69 cents a share compared to consensus of 55 cents. Domino’s adjusted earnings were 47 cents a share compared to consensus of 49 cents.
Strategies that lost money
Trend following technical strategies lost money.
Momentum strategies lost money.
Strategies that linearly extrapolate EPS growth lost money.
Strategies that made money
Strategies based on using sentiment as a contrary indicator made money. Going into earnings, the sentiment on Domino’s was extremely positive. As a contrary indicator this was flashing a red signal.
On the other hand, going into the earnings sentiment was negative on Papa John’s. This is the reason for an oversize reaction on the upside to the earnings surprise.
The old-fashioned tape reading strategies were successful. Of course, the tape reading strategies of yesterday have now been replaced by computer algorithms.
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