You can't expect a market to rally based on sentiment. You can't suddenly expect people to like the tape when earnings estimates are too high almost across the board for all companies that do international work, and there are lingering doubts about any company with any multiple at all that's not a soft-goods consumer products story.
Here's the biggest issue with this market: If a company beats expectations sharply, you need to see if it can go higher.
So the dichotomy among Smucker (SJM) and Hormel (HRL) vs. Ulta Salon (ULTA) shows how hard things really are there. Neither Smucker nor Hormel is cheap, both selling at about 23x times next year's earnings. Ulta's at 33. All three just reported better-than-expected earnings. But Ulta went down and the other two went up. (Ulta Salon is part of TheStreet's Trifecta Stocks portfolio.)
How is that possible?
I think it's because Ulta is a classic growth stock and growth stocks are contracting in P-E multiples. Hormel and Smucker are viewed as companies that are making acquisitions to do better, Hormel with Applegate, the natural and organic food purveyor, and Smucker's what looks to be very positive pet-food purchase.
In other words, in this market it's not enough to beat the number, you have to beat it by taking advantage of low rates and buying companies.
Last week I said that if Ulta didn't go up on an upside surprise, then the market's in trouble. I wasn't specific enough. I meant that the high-growth companies that beat the numbers are going to pause as people say they are too far ahead of themselves.
That's what I am worried about going into my interview tonight with Ulta CEO Mary Dillon. How can this stock not go higher given the circumstances?
Tonight I intend to find out.