Cubist's Earnings and the Market's Expectations

Clearly, I am still learning how the market 'thinks' - how it reacts to news.

Cubist announced the other day that it had its first profitable quarter ever. But it was under analyst estimates of revenue (~$50M vs. ~$54M). So it lost 6% in afterhours trading immediately following the announcement. Whatever the analysts' estimates, though, this is still a 58% increase over Q3 last year! I would have thought that would be enough for shareholders, but apparently not. Non-GAAP income was $0.14 per share, while GAAP income was $0.09 per share, compared with a loss last year of $0.08 per share. Isn't this a good thing? After a morning low of $21.21 the day after the announcement, the market decided this was all good news, and shares peaked at $23.18. That's a 9.2% total change from valley to peak! Just because of the market being indicisive!

In The Intelligent Investor Today, Larry Swedroe makes the point a few times that the market prices in expectation. So a downturn after missed earnings is something that I can almost understand... Except that analyst pricing is notoriously inaccurate. I'd think that investors would take them as rough guestimates rather than as precise numbers. In fact, analysts have a tough time getting the direction right, let alone a specific number by a specific date. (Swedroe talks more about macroeconomic analysts, who try to estimate general market trends; probably analysts do better on specific stocks with defined products and markets.) Givn all of this, wouldn't something close to analyst expectations be at least neutral if not positive? More importantly, shouldn't the milestone of the first profitable quarter help a company rather than hurt it? Obviously, I wasn't the only one expecting good news this quarter. But was that good news priced into the stock? I don't believe that there's an answer, because the stock yo-yo'd and ended up maybe a percent or two. From the close of business prior to the earnings announcement to the close today, CBST is up 3.5%. This may be nothing but noise: The NASDAQ is up 0.76% in the same period. Is this a significant difference? Maybe it is, now that I see the numbers. But the beta for CBST is ~3, so maybe this is just chance and nothing more. In other words, are we looking at an efficient market or a foolish Mr. Market? I still don't know.