In just about every industry, there are certain important or exceptionally busy times of year. In baseball, it’s spring training; for clothing designers, it’s fashion week. And then in trading, it’s earnings season.
Earnings season is a time when trends emerge and opportunities arise for savvy traders. Are you ready to make the most of these opportunities?
Here, I’ll talk all about earnings season, including what it is, why it matters, and how can you use it to your advantage as a trader.
What Is Earnings Season?
Truthfully, the term earnings season might be a bit of a misnomer, because it actually occurs four times per year.
Earnings season refers to the times of year when company earnings reports are released to the public.
Companies have 45 days after the close of the quarter to make this filing, and typically there’s a big wave of releases in the month or so following the end of the last fiscal quarter.
That means that if fiscal quarters end in March, June, September, and December, the earnings seasons are on a slight delay, and would occur in January/early February, April/early May, July/early August, and October/early November.
Why Does Earnings Season Matter?
If you want to stay on top of potential trades, it’s important to track the news.
Earnings reports are considered a specific news source that traders can look to as part of their fundamental stock research, helping inform both specific potential trades and offering information about potential emerging trends.
Earnings reports have the power to set trends and move the market. Why? For a few reasons, including:
Don’t just pay attention to individual companies’ earnings — look at large-cap companies and industry leaders, too. There’s an aspect of sympathy trading that comes with earnings releases, meaning that companies in the same sector can be affected by positive or negative earnings from industry leader.
Future projections and estimates
Analysts and financial advisors are looking at earnings reports, and this plays into the moves they will make in the near future. This can play a big role in what happens in the market in the the coming months.
Simply put: Earnings season is a pivotal time that has the power to affect the market at large.
Earnings Releases: Getting Started
To most effectively perform your earnings report research, be on top of earnings release dates for stocks you’re considering.
Ideally, you’ll have a watchlist of potential stocks to trade, and keep note of when they might release their report. Sometimes they will announce the release date; if not, you can look at when they have released their reports in the past, or call the company.
You should also review past earnings reports for a point of reference. Have the prior year’s numbers and analyst estimates ready from SEC filings or news services, you can review the company’s growth (or lack thereof).
Look at the last report, including both the numbers and the commentary. Remember: sympathy companies can be affected too, so look for companies in the same sector.
What to Look For in Earnings Reports
What should you look at when reviewing earnings reports? Here are a few key things:
Year Over Year Growth:
- Sales: Are the sales up this quarter compared to the same quarter last year? This is generally a good sign. If they’re up more than 20% or so this can be a great thing, but be sure to research if there is a specific reason why.
- EPS: Is the EPS up? Once again, awesome. However, take a look at any reasons that might be behind this.
- Loss to profit: Have the earnings swung from losses to profit? If so, why? Is it a trend that could continue?
Earnings Reports: Other Considerations
When reviewing the earnings report, be sure to ask yourself these questions:
- How do the earnings compare to analyst estimates? Did they meet, beat, or miss the boat?
- Is this sustainable? If the earnings were due to an event that could be considered a fluke, you need to take that into consideration.
- How do the earnings compare to the quarter prior? Don’t just look at the same quarter last year. Look for growth since the last quarter, too! Of course, this might not be relevant if the stock has a seasonal aspect that would mean that earnings would tend to be higher during certain quarters.
Earnings Reports : Pro Tips
Often, earnings reports will paint the company in a positive light, even if there’s trouble on the horizon. Here are some tips for how to read between the lines in earnings reports:
- Look for growth over the last year.
- Look at what the CEO has to say about the company. If the comments are non-specific or seem cryptic, this could be a bad sign. No comments could also be a bad sign!
- Is there something going on beyond the company (in the world or in the economy at large) that could affect current or future earnings?
- Is there new business on the horizon that could affect the stock in the future?
SwingTrades With Paul Scolardi
I’m Paul Scolardi, a swing trader and the lead teacher at SwingTrades.
When it comes to the stock market, I’m always looking forward. Instead of chasing what’s hot right now, I try to figure out what trends might emerge in the coming months.
Over the course of my trading career, I’ve developed a method of identifying hot sectors before they reach the boiling point by finding earnings winners, looking at sector leaders, and finding hot IPOs.
If you’re curious about my methods and ready to try swing trading, consider joining my SwingTrades program.
In SwingTrades, I teach students my techniques for getting ahead of the curve and spotting potential momentum stocks. I’ve taught over 1,400 students from 50 different countries and counting.
It’s important to remember that learning how to trade requires time, dedication, and lots of hard work. There’s an inherent risk to stock market investing, and it’s possible to lose your investment. So remember that any investing is at your own risk.
By learning more about how the market works with SwingTrades, you can learn to be better informed about the market, which can help you make more calculated trade decisions.
Do you execute trades based on a company’s earnings estimates? How has it worked out for you? Leave a comment and let me know!