If you’ve ever joined one of our webinars, you’ve seen this moment coming.
The presentation is done. The Q&A starts. And within minutes, someone asks the question that always shows up:
“Why is it down?”
Sometimes it’s a stock you own. Sometimes it’s one you’re watching. Sometimes it’s a company that shouldn’t be down because, on paper, it looks “fine.” The dividend is still getting paid. The business isn’t bankrupt. Yet the market has decided to take a chunk out of the price.
Here’s the thing: a stock can be down for a dozen reasons—and most investors look in the wrong place first. They hunt for a headline, a tweet, or a hot take. That approach usually creates more stress than clarity.
What you want instead is a repeatable process. One you can use every time a stock drops, whether it’s down 5% in a day or 25% over six months.
Let’s walk through the exact checklist I use to answer “why is it down?”—and more importantly, to decide whether it’s a problem… or an opportunity.
Step 1: Let the Numbers Speak First (but don’t stop there)
Before you read opinions, read facts.
Start with the basics: revenue, profit, and the dividend. In most cases, one of those three will explain the move (or at least point you in the right direction).
A stock is often down because the latest results show one of these:
- Revenue slowed, declined, or missed expectations
- Earnings dropped (or the market thinks they will)
- Margins compressed (costs rose faster than sales)
- Management guided lower for the next quarter or year
Compare the right periods.
Year-over-year (Q1 vs Q1 last year) is usually the cleanest comparison because businesses are seasonal. Ski companies don’t sell skis in July, and hardware stores don’t move snowblowers in May.
Sometimes management highlights sequential improvement (Q1 vs Q4) if last year’s quarter was unusually strong or weak. That can be useful, but your default should be year-over-year.
Step 2: Go Deeper into the Quarterly Earnings Story
Once you’ve spotted what moved, the next job is to find why.
This is where most investors stop too early. They read: “EPS down 12%” and assume the company is in trouble.
But “EPS down” can mean many different things.
Here are common scenarios that push stocks lower:
Revenue is stable, but EPS is falling.
That’s often a margin story. Input costs, wages, shipping, marketing, or discounting ate into profits.
Revenue is rising, but EPS is shrinking.
This can happen when growth comes with costs: a new product rollout, an expansion, or an acquisition that hasn’t paid off yet.
EPS dropped because of “one-time” items.
Impairment charges, restructuring costs, legal settlements, or write-downs can crush reported earnings. They may not be recurring—but they still matter because they signal something changed.
And one important reminder: EPS isn’t always the best metric.
For capital-intensive businesses (pipelines, utilities, telecoms) and REITs, earnings can look ugly due to depreciation and other non-cash items. In those cases, metrics like DCF per share, FFO per share, or AFFO per share may tell the real story. If you judge the wrong business with the wrong tool, you’ll draw the wrong conclusion.
Step 3: Use the Dividend Triangle as Your Health Check
When a stock is down, your brain wants to stare at the price chart. I’d rather you look at the Dividend Triangle and ask three questions:
- Are revenues growing?
- Are earnings (or the right cash metric) growing?
- Is the dividend growing?
But here’s the nuance: metrics alone don’t tell the full story. Trends do.
Two companies can have similar revenue growth this year, but very different realities:
- One has a steady, repeatable upward slope.
- The other is bouncing around with more volatility than your teenager’s mood.
That difference matters. A slowing trend in earnings, or in dividend growth losing steam, is often where the early warning signs appear. The Dividend Triangle trendline tells you whether the business is strengthening or weakening.
Step 4: Zoom Out — This Is Where You Avoid Dumb Decisions
A single bad quarter is not a trend. It’s a data point.
That’s why you look at 3 to 5 years of quarterly progression. You’re trying to categorize what you’re seeing:
- Blip: one ugly quarter in an otherwise stable upward trend
- Business as usual: the result looks weak, but it’s within the normal pattern
- Trend change: multiple quarters moving in the wrong direction
This is the step that turns panic into perspective. If you skip it, you’re basically letting the market’s mood swing control your portfolio.
Step 5: Identify the Narrative
Stocks don’t move on numbers alone. They move on the story investors tell about those numbers.
The usual narratives look like this:
- Demand is weakening
- Pricing power is fading
- Costs are rising
- Debt is becoming a headwind
- A major shift is underway
- A disruptive event hit the business
Your job is to connect the dots between the numbers and the story. Not to find a comforting explanation—just the most accurate one.
Step 6: Read CEO Comments Like a Human, Not Like a Fan
Management commentary matters because tone changes before numbers do.
Listen for:
- Are they confident and specific—or vague and defensive?
- Are they taking action—or blaming external forces?
- Are they raising guidance, maintaining it, or quietly walking it back?
A great CEO doesn’t promise perfection. They explain what they control, what they don’t, and what they’re doing next.
Step 7: Check the News, but Filter for Relevance
Sometimes the stock is down for reasons that have nothing to do with that company:
- Rate moves hit utilities and REITs
- A sector selloff hits everything in the group
- A macro scare triggers a market-wide risk-off mood
The question isn’t “what’s the headline?” It’s:
Is this company-specific, or environment-driven?
That distinction changes your decision.
Step 8: Expectations Can Be Brutal
Sometimes the market is simply too demanding.
This is where investors get confused: the company reports strong results… and the stock still gets punished.
A perfect example was Microsoft. After earnings, the stock dropped more than 10% even though it delivered revenue growth of 17%, cloud growth of 29%, and an EPS increase of 24%. Apparently, that wasn’t “good enough.” The issue wasn’t the quarter—it was expectations, valuation, and investor nerves around massive AI capex and when the payoff shows up.
I explained that whole setup in my January Dividend Income Report.
That’s the lesson: stocks don’t fall only because results are bad. They fall because results are less impressive than what the market already priced in.
The Bottom Line
When a stock is down, you’re not hunting for a quick explanation. You’re running a process that leads to one of three outcomes:
- The business is fine. The price is noisy.
- The business has a real issue, but it looks fixable.
- The story is deteriorating and the dividend triangle is cracking.
And here’s the part that brings it all together:
The reasons you buy a stock are often the same reasons you eventually sell it.
When the core drivers break, the thesis breaks.
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