Triple Play Meaning Pros and Cons Example

Triple Play Meaning Pros and Cons Example

Triple Play: Meaning, Pros and Cons, Example

What is a Triple Play?

Triple play is a term for when a stock beats analyst expectations for revenue and earnings, and also raises earnings guidance for future quarters. The term triple play was popularized by Bespoke Investment Group in the mid-2000s and is seen as a positive sign for the stock. Some investors use triple-play stocks as a filter for finding good stocks to research for investment.

Key Takeaways

– A triple play is when a company raises earnings guidance and beats revenue and earnings forecasts.

– Not all companies issue guidance, so they can’t have a triple play.

– A triple play is typically considered positive, but it doesn’t guarantee that the stock will rise on the announcement or continue to rise after.

Understanding the Triple Play

A triple play is seen as a positive sign for a stock because it indicates that a company is growing its business and earnings in a way that is expected to last over the next quarter, year, or more, depending on the guidance offered.

When a stock beats revenue and earnings estimates, analysts wonder if the higher numbers can be expected to continue. If the company does not raise guidance, it may indicate that management expects a drop in the next period.

Some companies do not offer guidance, but they can still beat revenue and earnings estimates.

Revenue and Earnings Estimates and Price Action

If a company beats revenue and earnings expectations, it is typically good for the stock price. There is also something called the whisper number, which is what the market or traders believe the revenue and earnings figures will be. Stocks don’t always react as expected to favorable or unfavorable revenue and earnings numbers. For example, a company may have numbers above the analyst consensus but the stock tumbles on the news.

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This can happen for several reasons, including an entity with a big position using the good news to exit. Since most people will interpret the news as good, the big seller may assume there will be eager buyers and unload their position with heavy volume. It could also be that traders were actually expecting revenue and earnings well above analyst expectations. When the actual numbers come out marginally better than the estimates, traders dump their positions because they were expecting more.

Guidance Pros and Cons

If a company issues guidance, it can be both a good and bad thing. On the bright side, it provides information to investors, helping them plan out what to do with the stock. On the downside, guidance may be "tweaked" to benefit the share price, either by issuing overly positive guidance or low-balling it.

Eliminating guidance could have its drawbacks too. Guidance allows investors to adjust positions over time and reduces earnings volatility. A company that doesn’t provide guidance could see more volatility around earnings.

Real-World Triple Play Stock Example

On May 23, 2019, Medtronic PLC (MDT) reported a triple play, according to Bespoke, and the stock gapped higher.

This doesn’t always occur. Sometimes the stock gaps lower, depending on whisper numbers and other factors. In this case, the price continued to rise following the announcement, but that’s not always the case. The triple play is just one thing to look for, but it shouldn’t be relied on exclusively.

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