Here’s something you will never hear from a traditional publishing house.
Earnings calls are the source of truth to understand how a company is performing. Almost everything you need to know about the company is available if you just dig into it. These calls matter as they provide a close-up view of what’s really going on, as told by the executives themselves. Everything else is noise.
The reason the stock price moves so much on earnings day is that analysts (including us) update their models with new information directly from the company. Given that the Q3 earnings season is almost done, let’s dig into three stocks that had a deep drawdown after announcing their results.
As always, the following are potential bargains that warrant a closer look, not blind investment. Read till the end to vote on which company you want us to do a deep dive on!
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1. Axon Enterprise ($AXON)
Axon is the pioneer of non-lethal electric weapons for police officers called Tasers. The company continues to hold a near-monopoly on the product (which brings in 40% of revenue). They also diversified their revenue streams into body-worn cameras, dash cams, and cloud software (the remaining 60%).
Axon’s devices and software are often sold together as part of an ecosystem. For example, most Axon body cameras and TASERs are bundled with a multi-year license to Axon’s Evidence.com cloud platform and related apps. These contracts are lucrative because they're sold on multi-year terms, and the software side has great margins.
The product patent, as well as successful expansion to adjacent markets, meant that the stock has returned 1,000x over the last 24 years.
But the company is now in a 35% drawdown with the stock dropping 14% following its latest earnings call.
Revenue: $710.6 million vs $705.2 million estimate (+30.6% YoY, 0.8% beat)
Adjusted EPS: $1.17 vs $1.54 estimate (24.1% miss)
What went wrong:
Tariffs: Axon’s margins got compressed due to the rising cost of hardware from suppliers in China, Taiwan, and Vietnam. The hardware gross margin dropped to 52.1% in Q3, down from 54.5% a year prior. CFO Brittany Bagley explained that Q3 was the first quarter with the full tariff impact.
Heavy R&D expenses: The company had a 50% YoY increase in R&D spending due to the $58 million in stock-based compensation. This spike meant that earnings growth did not keep up with revenue growth.
High expectations: The near-monopoly business meant that Axon went into the earnings with a ~200 P/E ratio. This lofty valuation meant that any disappointment in results or guidance could trigger an outsized reaction.
Rebound Catalysts?
The only thing we have against the company is its lofty valuation. Even after the 35% drop, the company is trading at a P/E of 140. But then again, the last time the company traded under a P/E of 100 was in 2022.
On the positive side, the company is rolling out several new products, such as in-car video, automated license plate recognition, and AI capabilities to auto-transcribe and translate 911 calls. Over the long run, international expansion (which Axon is pursuing) can create a large TAM for the company.
Finally, industry trends continue to favor Axon’s products — body-worn cameras to improve accountability and push for less-lethal weapons to reduce fatal encounters.
2. Chipotle Mexican Grill ($CMG)
Once in a while, you come across an analysis that proves your long-held belief. One Wells Fargo analyst bought 75 identical Chipotle bowls from different stores to prove that the food chain consistently had issues with portion sizes, with some bowls being much smaller than what the company promises.
Anyways, the company had lost almost half its value going into its latest earnings, and things did not improve. The stock fell 18% following earnings after the company cut its full-year same-store sales forecast for the third straight quarter.
Revenue: $3 billion vs $3.03 billion estimate (7.5% YoY growth)
Adjusted EPS: 29 cents adjusted, in line with expectations
What went wrong:
Even though the revenue and EPS numbers were not a huge surprise, it was the guidance and underlying trends that spooked investors. The company cut its full-year 2025 outlook for the third consecutive quarter, now forecasting low-single-digit declines in full-year comparable sales.
The core issue lay with the consumer demand.
Chipotle’s customer base includes a large cohort of younger consumers and middle-income households, and those groups have become more cautious. Chipotle’s CEO has highlighted that low- to middle-income customers (households earning less than $100,000) are dining out less often due to concerns about the economy and inflation. Younger consumers (aged 25 to 35) are also tightening their purses due to “unemployment, increased student loan repayment, and slower real wage growth.”
Our research also aligns with this. It’s not just Chipotle that’s getting hammered. Many restaurant stocks are really struggling this year.
Rebound Catalysts?
There’s not much Chipotle can do given the deteriorating consumer confidence. From the company’s part, they are betting on continued expansion, with plans to open 350 to 370 new restaurants next year (including international locations such as South Korea, Singapore, and Mexico, as well as parts of the Middle East).
Overall, while the company is excellent, it does not make sense to open a position until we see improvement in consumer sentiment.
Side note — This Andrew Rousso video making fun of Chipotle portions is one of the funniest skits ever!
3. Fiserv ($FISV)
Fiserv is a fintech company specializing in providing core banking software to banks, payment networks, and point-of-sale systems. The company’s flagship product is Clover, a smart POS platform used by small businesses for payment processing, inventory, payroll, and analytics. For example, the company processes payments and handles transactions at Walmart registers, gas-station pumps, and apps like Lyft.
On the core banking systems, they provide software used to maintain checking accounts, savings, loans, general ledgers, etc.
While the company was already weak going into earnings with a near 50% drawdown, the latest earnings decimated the stock, with it dropping 44%.
Revenue: $4.92 billion vs $5.36B estimate (+0.9% YoY, 8.2% miss)
Adjusted EPS: $2.04 per share vs $2.64 per share expectation (22.7% miss)
What went wrong:
The steep drop was due to management cutting its 2025 organic revenue growth guidance from 10% to just 4%. The guidance cut was due to a slowdown in merchant payments and a one-time impact of currency devaluation in Argentina.
Due to hyperinflation in Argentina, the company charged merchants a fee to get paid early, so they didn’t have to wait the 30-day cycle to get paid (by which time the currency might be worth way less). With inflation coming down, the amount the company can make with this strategy has also decreased.
Our take?
This is one of the situations where we will keep the stock in a “too hard” bucket.
The business is very complicated, and the outcome depends on the state of international markets, which is extremely hard to predict. The company has also engaged in some goodwill accounting shenanigans related to the 2019 acquisition of First Data, making the balance sheet too complex for us mere mortals.
Adding to all this is the political angle. The last CEO of Fiserv was Frank Bisignano, who has now joined the Trump administration (he was the one who set the guidance that the new management just threw out). There is now a probe into Bisignano’s time as CEO of Fiserv.
We would love to hear what you think.
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