EARNINGS SEASON DEFINED
Four times per year publicly traded companies report their earnings. In general, this is done at the beginning of each quarter. The company tells its shareholders what happened over the past 3 months. This period is also known as earnings season. Put simply, it describes a period time when the majority of companies release their earnings to the public. Earnings season occurs during January, April, July and October (the first month of each new quarter).
WHAT SHOULD YOU LOOK FOR?
Most investors look for 3 things during earnings season:
- Sales
- Earnings
- Guidance
Don’t forget about consistency!
To get an accurate read, it is important to compare the same quarter each year vs the same quarter in the prior year. For example, in January, companies report how they did in the fourth quarter (Oct-Dec) of the prior year. The fourth quarter tends to be strong for most companies because of the holiday shopping season. So it would not be accurate to compare sales in the fourth quarter vs sales in the third quarter. To remain consistent, investors tend to compare the same quarter vs the same quarter in the prior year. For example: Q4 2014 vs Q4 2013. Ideally, investors want to see strong growth in both sales and earnings vs the same period in the prior year. In addition to reporting earnings and sales growth- Most companies also release guidance for the new quarter and rest of the year.
Our Secret Ingredient To Earnings Season:
In addition to analyzing the data, we place a stronger value on how the stock reacts to the data. I have seen stocks fall after reporting strong numbers. I have also seen stocks rise after reporting weak numbers. Therefore, this subtle, yet very important, clue offers investors great insight into how the stock will react over the next few months. Paying attention to how the stock reacts to the numbers is a very powerful tool to understanding how investors will react going forward.
Advanced Strategies for Playing Earnings:
We created a special guide with strategies that will help us take advantage of stocks during earnings season. We call this our Trader’s Price Gap Survival Guide. It focuses on risk management and advanced entry/exit strategies.
