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| Trading Strategy - Earnings |
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| Earnings a very popular trading strategy If you can get in - at an opportune time - large profits can be made, but there are many sides to this strategy that needs to be reviewed and understood. When to buy? Company's report earnings quarterly ( 4 times a year). There are many sites on the net that offer earnings release dates. Here a link to get you started Dailytsocks Earnings calendars another favorite is earnings.com For the lastest earnings warnings - click earnings warnings now before you jump in and buy, consider this: you want to wait till the good or bad news from last quarters earnings release has worn off. You can tell this from the stock chart, price leveling off and volume drying up. Don't step in to soon, many companies will pre-anounce earnings news prior to the end of the current quarter. This will generally happen about 80-90% into the quarter. ( approx 1-3 weeks before the actual earnings date) This happens because at this particular time in the quarter, there is nothing more they can do to impact the current quarter if it's bad news, and they want to get the bad news out of the way. (sometimes company's try to strategize this bad news release, with some other positive news, or in an uptrend market) or on the other hand ,if it's good news they will try to create double-pop effect regarding their earnings. (one at the pre-anouncement, the other at the actual earnings release date.) DO your research: find out the history of the company's past earnings releases. Key point to remember is that the stock will rise or fall based on meeting or beating the earnings estimate formulated by the analysts and finanicial institutions that track the company. You should check the company's past performance, have they consistently beat estimates in the past ? or have they been inconsistent or missed in the past. ( go to the Nasdaq site and use info quotes, it is one of my favorite places to get this information) Nasdaq Info quotes How much has the company's revenue and profits risen in the past, are profits rising but revenue leveling off or declining - not a good sign, a company can only squeeze expenses and increase productivity so much. Early on in a growth stock it is better to see rising sales, a good marketing plan, key partnerships developed, then has the company made money yet. The feeling is if the business model is creating excellant demand and sales trend, then improvements in productivty, expenses will improve as the company grows thereby attaining profitability several years down the road. Write down the percent of increase for both sales and earnings for the last couple of years to see any trend. Remember results are compared year over year. So if the company has had a very strong 4 quarters performance in a row, this next quarter release date would be going against these strong numbers, which would make it difficult maintain the same pace, particularly as the company gets larger. Important key points: Many times a stock will run dramatically in anticipation of a good earnings announcement, when this happens it is not uncommon for the stock to trade down once the news is released, even if they beat their numbers. This happens because the good news is already priced into the share price. So in answering the key question when should I buy? A good place is 7-10 days before the earnings release date. You can certainly get in sooner or later than this time frame, but always remember protect yourself with sell stop orders if you are on the long side, or buy stop orders if you are short the stock. (personally I think selling short into an earnings release in dangerous, even if you know there is bad news. Why? because sometimes the bad news gets prices into the stock before hand like with a pre-announcement, and when the bad news is announced many investors may be relieved that the news wasn't worse and the stock could actually trade up. It is also a prime situation for a short squeeze.) Lastly, let's not forget those whisper numbers, the rumor mill that goes around anticipating what a company's numbers may come in at....a couple of sites to try whispernumbers.com and earningswhispers.com |
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