A Sharp Rise That Surprised Everyone
Many people first came to know about a major video-calling company only after the world shifted heavily to online meetings. Before that, very few even knew it existed. But once usage increased suddenly, the company’s stock moved from around $50 to almost $600.
Many felt the future of communication had changed forever, and this company would grow without limits.
Earnings Grew Fast, But the Stock Still Fell
When the company became popular in 2020, it had an income of only about $20 million. Today, that same company earns nearly $2 billion. The earnings have grown almost 100 times. But the stock price has fallen nearly 85% from its top and now trades near $86. This looks strange, but it shows how the market can sometimes price a stock far above its real earning power and later bring it back down.
Why Stock Price and Earnings Do Not Move Together
Stock prices do not follow earnings in a straight line. The market often tries to guess how big the future earnings might be. If the market believes the company will make huge money, the price may rise too high. When real earnings do not meet those big hopes, the price falls back. That is what happened here. Earnings increased a lot, but the stock price could not keep up because expectations were too high.
This Pattern Can Happen in Many New-Age Companies
Today, many fast-growing sectors face the same situation. People feel the future potential is unlimited, so they value these companies at very high levels. The earnings of such companies may grow year after year, but the stock price may not behave the same way. It may rise fast in the beginning and then fall or stay flat for many years. This gap between belief and reality is common in the market.
Why Following Trends Matters More
It is very hard to match stock movements with earnings and profits immediately. The market often reacts before numbers become public. That is why many people follow trends. If a stock starts making new highs, some prefer to ride the trend. And once the trend turns down, many exit instead of holding through long declines. In many cases, people buy near the top and then remain stuck for years, waiting to recover their cost.
The Right Approach Makes All the Difference
How you approach the market matters a lot. You can either follow trends or try to guess future earnings. Both methods exist, but one has to be practical. A clear trend often gives more timely signals compared to waiting for income or profit numbers. Understanding this difference can help avoid long periods of being stuck in a falling stock.
