It’s that time of year again: Earnings season!
Each quarter, thousands of US companies release their business results from the prior three months. These reports include all of the key financial metrics, as well as a conference call from management. This allows companies to communicate with their shareholders — with both good and bad news — and also serves as an opportunity for shareholders to evaluate their investments.
Stocks aren’t generally as volatile as some other asset classes, but their prices tend to move more in the time periods leading up to and following their companies’ earnings calls. So earnings season can be a critical time for identifying investment opportunities, whether via stock or options trading, to take advantage of stock price drops or spikes.
Here are a few tips on how to make the most of earnings season.
Guidance Is King
When it comes to earnings, investors’ main focus tends to be on earnings and revenue. However, how a stock reacts isn’t just tied to these two metrics. Of course shareholders like to see a company beat Wall Street’s expectations for these metrics. But remember, it’s less about what a company has done and more about what it is going to do in the future.
That boils down to guidance. Not all companies provide guidance, but it’s a major focus for the ones that do. More on that below…
Possible Earnings Outcomes
There are a lot of potential outcomes to when a company reports earnings, but these are the four main ones:
- The stock rallies after an earnings beat.
- The stock falls despite an earnings beat.
- The stock falls after an earnings miss.
- The stock rallies despite an earnings miss.
A lot of times guidance can influence these outcomes. Strong guidance can help offset an earnings miss, while weak guidance can erase any bullishness caused by a strong earnings beat.
Sometimes, the reaction in the stock doesn’t make any sense on the surface, such as when a stock tanks despite beating on earnings estimates. But there are a lot of moving parts around earnings — like guidance and what’s said on the conference call — that can impact how a stock trades.
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Tools on eToro
All investing carries some level of risk, so make sure you only invest funds you can actually afford to lose. Savvy investors have learned how to balance risk with potential reward in order to raise their probability of making money overall. Starting to close the gap between your own level of investing and theirs can be as simple as spending some time on research and practice.
It’s a good thing eToro has an award-winning demo account experience that allows you to experiment with $100,000 in virtual money. You can analyze stocks, build your own strategies, test them out in your virtual portfolio, and see exactly how they would’ve performed on eToro had you opened them with real money.
Ready to try out stock investing? A great place to start is eToro’s economic calendar, which highlights key dividend payments, big economic events, and important earnings dates. Alternatively, you can bookmark our full earnings reports page for a deeper dive into quarterly reports schedules.
The eToro Academy, and especially this little guide to stock investing, is a great resource to help you learn the ins and outs of investing. You can check out any of our Academy courses – for multiple asset types – at your own pace. It’s all completely free, and more courses are added all the time!
Holding at least $5,000 on eToro unlocks club-level access to asset-specific research, including performance analysis and outlooks. But even eTorians who haven’t deposited at all can access the advanced charting tools, powered by ProCharts, that can help you create your own investing strategies.
eTorians can also take advantage of stock-specific notifications, customizable alerts directly from their watchlist, and standing limit orders that trigger when a stock reaches a certain price.
Last but not least, each morning we send out a daily note* called “The Daily Breakdown”. In these notes, we discuss everything from earnings to inflation — whatever is making waves in the market – and explore real-time opportunities.
While researching earnings can certainly be a solo journey for investors, eToro users can lean on their in-house analyst team, too.
* If you don’t currently get these emails, check the email settings in your account to make sure you are subscribed, or open a case with our customer support team.
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