Stock traders tend to get excited whenever one quarter comes to an end and another one begins because that means it is earnings season. However, you have to be careful when you look at a company’s earnings because sometimes stock prices don’t always move in the direction you think they will when a company announces its earnings. Here’s an example.

During the run up in oil prices in 2007 and the unprecedented oil boom of 2008, Exxon Mobil (XOM)—the descendant of John D. Rockefeller’s Standard Oil—had a string of record-breaking quarters. In fact, Exxon Mobil announced record earnings virtually every quarter during those two years.

Obviously, Exxon Mobil was making boat loads of money. The real question everyone had though was, “Will these record earnings boost the value of Exxon Mobil stock?”

Earnings are perhaps the most-watched piece of fundamental data investors look at when they conduct a fundamental analysis. After all, it is earnings that drive dividends and growth, and they also drive higher stock prices…or do they? Let’s take a look at the Exxon Mobil chart below and see how its stock price fared when during the period when it was announcing record-breaking earnings quarter after quarter.

So how did Exxon Mobil’s record earnings announcements affect its stock price?

November 1, 2007

—The stock dropped the day the earnings announcement was released, and it continued to drop for two weeks afterward before rebounding.

February 1, 2008

—The stock once again dropped the day the earnings announcement was released, and it continued to drop for approximately one week afterward before rebounding.

May 1, 2008

—The stock dropped the day the earnings announcement was released, and it too continued to drop for approximately one week afterward before rebounding.

July 31, 2008

—Once again, a drop before regaining price.

So what is going on here? Why didn’t the stock price rise to new highs on each of these record-breaking earnings announcements?

It’s all about expectations—expectations of what the total earnings was going to be and expectations of what earnings are going to be in the future. As crazy as it may sound, if a company has a record-breaking quarter but Wall Street expected it to break the record by an even larger margin, the price of the stock will fall because the company didn’t meet Wall Street’s expectations. Also, if a company has a record-breaking quarter but Wall Street anticipates it won’t fare as well in subsequent quarters—either due to guidance the company gives that it won’t be performing as well or due to something Wall Street analysts see—the price of the stock will fall.

Here’s the lesson from all of this…you can’t judge a stock on the value of the company’s earnings alone. You have to look at the bigger picture—technical analysis, relative strength and so on—to be successful.