When Companies Stop Giving Guidance
As we analyze the first quarter of 2025, this earnings season reveals a concerning trend. Companies across various sectors are increasingly reluctant to provide forward guidance—those critical projections of future earnings and revenue that investors rely on for decision-making to buy or sell shares of stock.
This “silent quarter” speaks volumes about the uncertainty in today’s market environment. There are a small handful of CEOs that are providing two guidance scenarios for analysts and shareholders to digest. One is a “worse case tariff filled set of numbers” and the other is “best case no tariff impact guidance” numbers for EPS and Revenues. Thus far these have been accepted as positive by the investment community, if nothing more than as a compromise. Seems like a CYA move to many (like me), although I do not begrudge the CEOs for doing it this way. Keep in mind this “give you two sets of numbers” approach still does not really satisfy the forward-looking metrics of P/E as an example.
Why Forward Guidance Matters
Successful investing depends more on understanding where companies are heading rather than where they’ve been. Historical past performance provides context, but future projections drive investment decisions. When companies withhold guidance, they create a significant information gap for investors.
Many corporations are now citing tariff pressures as their primary reason for withholding these projections. Their reasoning is pragmatic: if they provide estimates they later need to revise downward, their stock price could face severe punishment in the market—even when the factors forcing those revisions were entirely beyond their control.
Consider the challenges companies currently face:
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Supply chain disruptions
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Forced price increases
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Restricted access to international markets
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Regulatory uncertainty
All these factors make reliable forecasting exceptionally difficult in today’s economic landscape.
The P/E Ratio Trap
During economic downturns, many investors—even experienced financial advisors and hedge fund managers—look at declining price-to-earnings (P/E) ratios as buying signals. This approach can be dangerously misleading in our current environment.
When market sentiment turns negative and widespread selling occurs, even stocks with attractive valuations continue to decline. Since the recent “Liberation Day” market events, many investors have learned this lesson the hard way: low P/E ratios alone don’t provide a floor for stock prices during periods of uncertainty.
Understanding P/E Ratios
To calculate a company’s P/E ratio, divide its share price (P) by its earnings per share (E):
P/E = Share Price ÷ Earnings Per Share
For example, if Uber trades at $74 per share with a “forecast” of $4.50 earnings per share: $74 ÷ $4.50 = 16.44 P/E ratio
This 16.44 multiple falls comfortably within the market’s preferred range. Generally, P/E ratios below 25 are considered positive and workable, (there are exceptions to every market rule), with lower values typically being more attractive. Importantly, this ratio should be calculated using forward earnings projections (typically for the next twelve months), not historical data.
Sidebar: Above are Two Talking Cans with Strings.
Is this how Donald Trump is currently negotiating Trade Talks with Xi Jinping?
The Current Guidance Problem
Here’s where today’s market presents a unique challenge: How can investors calculate meaningful P/E ratios when companies aren’t able or willing to provide reliable earnings estimates? Some corporations are explicitly stating that they see “too many headwinds” to offer up accurate guidance due to tariff uncertainties.
Without reliable earnings projections, the P/E ratio—a fundamental tool for valuation—becomes significantly less useful for investment decisions.
A More Comprehensive Approach
Rather than relying solely on P/E ratios during this period of limited guidance, investors should “always” evaluate companies using a more comprehensive framework.
Consider these seven fundamental factors:
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P/E Valuation (when available)
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Compound Annual Growth Rate (CAGR) – Historical year-over-year growth provides insights into a company’s momentum
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Earnings Per Share Trends
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Debt Structure – Both short-term and long-term obligations
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Profit Margins
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Net margins (most critical)
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Operating margins
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Gross margins
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Free Cash Flow – Often more reliable than reported earnings
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Management Quality – Experience, vision, mission, and leadership capabilities
By analyzing these factors collectively rather than fixating on a single metric, investors can make more informed decisions even when companies withhold formal guidance.
Conclusion
As we navigate this challenging investment landscape, adaptability becomes essential. When traditional valuation methods are compromised by a lack of forward guidance, expanding your analytical framework provides a more complete picture of a company’s prospects. In times of uncertainty, comprehensive analysis offers the clearest path to sound investment decisions.
This article is for educational and entertainment purposes only and does not constitute investment advice. Always conduct your own thorough research and consult with financial advisors before making investment decisions.
