Five Key Metrics to Look at When Trading Stocks During the Earnings Season
In recent months, the field of currency trading has seen relatively weak volatility. As a trader, the lack of volatility has led to lower profits. In fact, in this earnings season, the major traders like Goldman Sachs, Morgan Stanley, and JP Morgan jave reported weak profits in the Fixed Income Commodities and Currencies (FICC) segment because of the low amount of volatility. Part of the reason for this is the synchronized pace of global growth. With the earnings season currently going on, it presents an interesting period for you to make money in the market. For this reason, you should look at the following things.
Revenue and EPS
When companies release their reports, the headline numbers are revenues and Earnings Per Share. You will find these numbers in the Earnings Calendar. Therefore, you should look at the headline numbers and determine whether a company is growing or slowing. Also, you should look at whether the company has beat or missed the projections by the analysts.
While the revenues ans EPS are usually important, they are lagging numbers. This means that they tell investors what has already happened. Investors on the other hand are known to look forward. They are more interested in what the company will make in the next quarter or in the full financial year. Therefore, you should look at the company's guidance and whether it is an upgrade, flat, or a downgrade. In most cases, the stock price of a stock will move based on the guidance.
Company earnings are not equal. This is because investors tend to look at key specific details for each companies. For investment banks like Goldman Sachs, they look at the FICC earnings growth, which tend to provide the most margins. For technology companies like Netflix, they look at the user growth. The same is true for social media companies like Facebook, Twitter, and now, Pinterest. For retail companies like Walmart and Target, investors tend to look at the comparable sales while for fast growth retailers like Lululemon, they look at the number of new stores. Therefore, you should look at the key specific metrics for different companies
During the earnings season, companies tend to make key announcements. This is because they get a chance to explain the reasons for the acquisitions to analysts and shareholders in the earnings call. For example in the current earnings season, we have seen a number of announcements: Chevron has announced that it will acquire rival Anadarko while Disney has given details of the Disney+ product. Therefore, you should look at the specific details for major movements.
The earnings season provide analysts with a good opportunity to upgrade or downgrade their stocks. They do this because of the latest news that companies release. While the credibility of the analysts calls has been questioned, investors tend to pay a close attention to them. Whenever they release their calls, the stock price tends to gain or lose. In the recent weeks, we have seen key calls on companies like Qualcomm, Apple, and Chipotle.
While there are many things to use when trading stocks in this earnings season, these 5 metrics are the most important. Your role is to identify when a company is expected to release, and place trades accordingly.
Earnings season - Important resources
CNBC expectation: Click here
Earnings Calendar: Markets Insider