What Happened?
Shares of enterprise data capture company Zebra Technologies (NASDAQ: ZBRA) fell 14.1% in the morning session after 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.
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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. But moves this big are rare even for Zebra and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 18 days ago when the stock dropped 4.9% on the news that President Trump threatened a 'massive increase in tariffs' on Chinese imports, reigniting fears of a renewed US-China trade war. The unexpected comments, made in response to Beijing's plans to tighten export controls on rare-earth minerals, reversed early market gains and sent major indices tumbling. Rare-earth minerals are crucial for components used in the electronics and automotive industries. The tech sector led the losses, with the tech-rich Nasdaq Composite falling 1.7%. The threat jolted Wall Street, sparking concerns that escalating trade tensions could disrupt global supply chains and increase costs for many technology companies that rely on components or manufacturing from China.
Zebra is down 31% since the beginning of the year, and at $264.61 per share, it is trading 37.2% 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 $927.80.
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