The Definitive Guide To Earnings Season

2019-04-26 | Simpler Trading Team

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Earnings Season Reveals Company Profits, Losses

Diving into earnings season begins with a few basics.

The earnings report calendar generally runs from two to five weeks following the end of the previous quarter. For example, the first quarter (Q1) earnings cycle starts around the second week of April and runs into the first part of May. The second quarter (Q2) earnings calendar follows in mid-July through the first part of August. Third and fourth quarter (Q3 and Q4) follow the same earnings season calendar.

Most U.S. companies operate within a traditional 12-month calendar year for financial reporting. Some industries, such as retail, file quarterly earnings about a month after other companies.

All publicly-traded companies must disclose quarterly earnings reports as part of federal Securities and Exchange Commission (SEC) filings.

An earnings report is a combination of quarterly sales and profits. Earnings statements will contain profit and loss from the previous quarter or year.

There are no official dates for quarterly filings, so earnings periods can be a daily rollout of earnings statements from many companies.

Companies relay quarterly filings through a combination of press releases, SEC filings, and earnings calls which may have comments and discussions with company management. There is no standard filing format other than the mandatory SEC report.

You’ll find many companies filing earnings reports once the market closes on the day of the report. There is no hard and fast rule for the timing of earnings announcements. Some companies even release earnings before the market opens the day of the report.

Generally speaking, companies release earnings after hours to allow any significant events - high profits, quarterly losses - to be digested by the media and the public. In today’s world, media outlets are always working and information about earnings reports today spreads almost instantly.

Big news affecting a company’s bottom line can cause huge swings in stock prices. Depending on the popularity of the company, earnings news could affect the overall market, such as a sudden stock price drop in national banks or technology stocks.

Traders can find earnings release dates and company information at free sites online. These can be found with an internet search for “earnings season” or even from the markets like the Nasdaq stock exchange.

Such sites contain information regarding quarterly and annual filings. If you want to dive into government reports and data for years past you can tackle the free SEC company filings records online.

Traders can also take advantage of paid services that disclose company and stock earnings information, including calendars, past history, forecasts, and ideas about how this data might apply within the overall market.

Investors wanting to stay on top of the earnings call calendar can consider Simpler Edge. Edge provides access to data used by institutional investors in real-time. Edge members have immediate access to notable earnings reports and updates that other retail investors may not see for weeks.

Simpler Trading also has a chart indicator to view earnings-specific information onscreen for traders using popular trading software.

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Earnings Reporting Schedule, Accounting Can Frustrate Investors

Trying to decipher earnings reports can overwhelm even experienced investors. There is a level of frustration about earnings release schedules and the way companies present financial performance.

All companies must file earnings notices using the Generally Accepted Accounting Principles (GAAP) quarterly and annually.

While GAAP is the SEC-required standard, companies can use more “creative accounting” for public disclosure. An example might be reporting finances over 15 months compared to the traditional 12-month calendar year. Non-GAAP accounting methods can confuse some investors considering trading a company’s stock market earnings.

When investing, be sure to research the details of a company’s schedule and accounting methods. It can help guide trading decisions.

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Moody Market

A company’s earnings report isn’t the only driver of stock value. And, stock values in the markets don’t always follow earnings news either positive or negative.

Popular stocks such as technology can appear “overvalued” compared to the actual earnings of the company. The stock may be priced at many times the earnings value because of demand or market speculation that earnings or losses today won’t affect future value.

A key stock price indicator in quarterly or annual reports is earnings per share (EPS). A company determines EPS by calculating after tax profits and dividing that number by the total number of company common shares outstanding. The result equals earnings per share.

Company operations and financial data aren’t all that affect stock value during earnings timeframes. The market can be a fickle beast during this time.

Bad news may not affect a popular stock while good news may not help an unpopular stock. There are technical reasons why, but basically this is why earnings season is so volatile for traders.

For example, even with a positive earnings report that shows a company beat quarterly earnings expectations, its share values can fall.

How is this price drop possible?

One reason is that investors aren’t happy with the company’s performance despite positive news. Earnings may not have met investors’ expectations or may be lower than similar companies.

Investors, especially larger funds, can sell shares in large volumes after learning the news from a quarterly report and cause share prices to drop.

There may also be news in the earnings call that makes investors believe the company can’t sustain earnings growth over time.

Any lack of confidence in the company from investors can change how the market reacts to share values.

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Demand Data

It’s important to remember that the stock market is much like anything else in business - demand is powerful.

If everyone wants to own the latest, greatest stock, the market value may be well beyond earnings value or company news. If no one cares about the company - no matter how good the company is operating - the stock price may suffer in the marketplace.

Earnings season is a well-anticipated time for financial investors and traders. Higher profits or significant losses can cause elation or desperation. Earnings reports can directly affect stock prices and often create unpredictable volatility in the market that may not make logical sense at times.

Answers to questions about finances, performance, and profit potential aren’t going to be complete within a single company earnings press release.

Trades during earnings cycles can be profitable, but require study, understanding, and a well thought out trading plan. Earnings season traders are encouraged to seek out an established mentor to follow. Learning to follow the success of an established trader through earnings season is a smart play.

Earnings season is high-risk with unexpected moves in the market and stock prices. Traders of all skill levels are constantly seeking earnings information and indicators to guide their investments.

Updated, accurate, and timely earnings and market data is needed for shrewd trading decisions.

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Not All Traders Have An Equal Chance During Earnings Season

Stock market trades are dominated by institutional investors during earnings season. These are investors, mostly large corporate entities, that can wield large sums of money to purchase financial securities, like stocks. Examples of institutional investors include national banks, worker pension funds, investment companies, insurance companies, or hedge funds.

Institutional investors can buy or sell within the stock market to the point their purchases can affect momentum in the market.

By comparison, retail investors - mostly individuals and smaller investing companies - make up the rest of people investing in the stock market. These are investors seeking additional personal income who may want to boost retirement accounts or save for their children’s future.

Retail investors face an uphill battle with the “powers that be” when trading during the earnings cycles.

Someone trading a few thousand dollars doesn’t compare to an institution trading millions of dollars within a billion-dollar fund. This lack of purchasing power pushes retail investors into paying higher fees per trade in addition to other fees that institutional investors can get waived.

There are also arguments showing an institutional and regulatory bias against retail traders.

Arguments are that big players in the market set the stage to undermine trading positions of retail investors who are seen as inexperienced by the SEC. The SEC promotes its intention of protecting retail investors from engaging in complicated or high-risk trades.

Federal regulations do benefit retail investors, but there is the argument this protection is too restricting.

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Follow the System

Fairness arguments aside, retail investors must learn to trade within the system to become profitable traders in risky markets. Like anything in the financial markets, accurate, timely data is vital to trading success.

You can start gathering trading information during company earnings calls.

Companies offer financial information during their quarterly or annual earnings call. Anyone can listen to these calls which are free and open to the public. Company executives will offer the first peek into financial performance to date and can provide expectations for future performance.

Company executives usually deliver updates during these investor calls as opposed to just sending out the earnings statement in a press release. This is an opportunity for investors to take note of company officials’ reaction to positive or negative earnings information.

Industry analysts also have the opportunity to ask direct questions during these conference calls. This interaction can provide investment guidance as well.

Combined with hard financial and performance data in an earnings report, the earnings call can be a great source for investors wanting to plan market trades with company stock.

While it’s good to get public information during an earnings call, experienced traders know they should strive to gather as much information as they can afford. Choice market insights require an investment.

Institutional investors can pay upwards of $100,000 per year for access to real-time earnings data. Individual traders can find if difficult to gain access to this high-powered information.

One way to get a leg up to the level of the “big players” is a paid subscription from a professional outlet.

Simpler Trading is an information source that provides an exchange of ideas, and can deliver market information generally only available to institutional investors. Simpler Trading also provides an earnings report calendar with daily updates and a market watch list.

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Forecasts and Estimates

As part of their guidance during an earnings call, companies may offer insight into corporate earnings estimates for the next quarter or year. This guidance may cover expectations for income and expense items such as debt, sales, dividend payments, earnings per share, taxes, revenue, etc.

Traders or other investors should be cautious not to treat financial guidance or expectations as profit forecasts or “set in stone” estimates. Financial conditions can change quickly within a company’s operations and the overall markets can change even faster.

Earnings filings are not crystal balls when it comes to trading stocks. There is simply no way to “tell the future” with company financial forecasts or estimates.

Popular earnings strategies attempting to predict the future are doomed to fail.

Seasoned traders will develop specific tools and resources that can deliver an edge on earnings reports to watch, stock market earnings, and upcoming company results. Earnings season has a limited window around any specific company. Experienced traders will have carefully structured trading plans in place to profit during that window.

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Earnings Plays

Earnings season can be the deep end of the swimming pool for traders. You don’t want to jump in unless you’re prepared.

Despite all the accounts of success and horror stories about losses, it is possible to structure a strategy that takes advantage of earnings season trades. The key is being willing to lose anything you invest.

The start of the next earnings interval is always approaching, and many traders in the Simpler Trading community will be in the mix.

Simpler traders have learned through training and connecting with other traders different ways to minimize their risk and focus on high-probability earnings season trades. These trades are set up using a unique combination of analysis and strategies proven by our active trading mentors. The key is having a high-probability plan to enter and exit trades.

Every trader must figure out what works for them when earnings season begins. It’s a wise choice to get help and guidance from experts along the way.

Earnings season can be daunting for traders of any skill level. The good news is that with Simpler trading you don’t have to trade alone.

Get connected to discover potential trading opportunities this stock earnings season.