Today you’ll learn how to know when company reports earnings.
- What is a company earnings reports
- Where to find earnings reports
- Earnings Per Share
- Forecast versus Actual
Traders or investors need to know when a public company reports its earnings. They do not want to be caught off guard.
As a minimum, public companies are required to file its Quarterly and Annual Reports, including earnings reports.
These financial reports sometimes become their catalysts, and people can capitalized on these trading opportunities.
Most traders and value investors protects their investments by tracking the company’s financial health. They can use the company’s earnings reports and its current market price for that purpose.
Traders look at those reports to find trading opportunities.
Sometimes, even though the company reported its increased earnings, the stock may still fall, and that is when most mean reversions traders looks for trading opportunities.
Although watching the company’s financial health is required, earnings per share is one of the best indicators in trading, more details is shown further below.
What is a company earnings reports?
According to Investopedia, a company’s earnings report is simply its profits. (source)
The formula is Revenue – Expenses = Net Profits. To simplify, expenses often include taxes, depreciation and amortization.
Companies are required by law to report their financial results on a quarterly and annual basis. The report is often referred to as the report card of Wall Street.
The video below will explain it further.
In the earnings report, the net profit is divided by the number of outstanding common shares to get earnings per share.
Why traders should look at the earnings report?
Well, most trading websites teach that strong earnings generally drive the stock up, yet the result in real trading is different.
Reports with increased earnings do not always drive the stock price up, and most traders lose money because of their wrong assumptions.
In stock trading, to be successful, the market must show its reaction first from earnings report before one can act.
Most traders fail in their trading because they do not time their entries and exits correctly.
For example, stock falls even with strong earnings, in this case, a lot of traders are probably taking profits or institutions are currently accumulating shares.
The stock market is always unpredictable on its directions.
No one can predict where it will go.
Traders can only use their common sense especially with earnings report.
Where to find earnings reports?
Tradingview created its own tool to help traders and investors know when company reports earnings.
The earnings calendar shows schedules from yesterday, today, tomorrow and next week.
The columns are also sortable by their fundamental factors. For example, Market Cap or Market Cap Valuation, EPS Estimate, Reported EPS and many more.
However, actual results are posted at the end of the day as shown in the image above.
For example, in today’s schedule, Reported EPS values are still not posted, and the data may appear afterwards.
The calendar also shows future schedules, so traders can plan their trades in advance.
Investors.com also provides its own earning reports calendar.
The columns are not sortable, but they add Options expiry dates.
NASDAQ’s calendar shows consensus EPS/forecast and last year EPS in which traders can use to compare data for their trading.
Business Insider has a simple earnings calendar, yet people can get more information by clicking on the quotes, news and estimates.
Earnings per Share (EPS)
When a company reports their earnings, the trader should calculate the earnings per share, because it is important .
The formula looks like this:
Net Earnings after Tax/ no. of outstanding shares = EPS
Bigger value indicates greater profits for each share.
Most people use EPS in their trading to pick stocks. However, in the short-term, fundamental analysis do not always work.
It may work on medium term trading holding period, but generally, it is for long term investments.
How to use EPS correctly?
Quants mostly use EPS growth rate for their trading filters. However, not all of them use it.
Forecast vs Actual Results
Trading opportunities are often available when expert expectations are not met. Stocks can rise or fall depending upon the market forces.
A trader should develop his own trading strategy to adapt to any market direction. Good day.