What Happened?
Shares of enterprise data capture company Zebra Technologies (NASDAQ: ZBRA) jumped 3.2% in the afternoon session after the stock rebounded as the company reported third-quarter results that surpassed its own outlook following a volatile week. For the quarter, Zebra reported a 5% year-over-year increase in sales to $1.3 billion, and non-GAAP diluted earnings per share increased by 11% to $3.88. The company also provided a strong sales growth outlook for the fourth quarter of 8% to 11% and announced a plan to commit $500 million to share repurchases. Despite the positive report, the stock had previously slumped during the week after the earnings guidance fell short of some expectations, with reports noting a slowing in orders. Adding to the pressure, Citigroup had decreased its price target on the stock to $311.00 from $346.00. The stock’s recovery suggested investors shifted their focus to the solid quarterly performance and shareholder-friendly buyback plan.
The shares closed the day at $269.10, up 3.1% from previous close.
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What Is The Market Telling Us
Zebra’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock dropped 14.1% on the news that investors focused on shrinking profit margins despite its third-quarter results beating profit estimates. The company met Wall Street's revenue expectations with $1.32 billion in sales and beat profit estimates with an adjusted EPS of $3.88. Furthermore, Zebra projected fourth-quarter revenue and earnings above analysts' forecasts. However, investors appeared to be concerned with signs of weakening profitability. The company's operating margin fell to 13.9% from 15.2% in the same quarter last year, and its free cash flow margin, a key indicator of cash generation, dropped significantly to 16.4% from 22.1% a year ago. This decline in margins suggested that despite top-line growth, the company's operational efficiency was deteriorating, raising alarms about the quality of its earnings.
Zebra is down 29.8% since the beginning of the year, and at $269.25 per share, it is trading 36.1% below its 52-week high of $421.11 from January 2025. Investors who bought $1,000 worth of Zebra’s shares 5 years ago would now be looking at an investment worth $918.72.
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