What You Need to Know About this Earnings Season – Introduction
Every quarter, public companies in the United States are mandated by the securities and exchange commission (SEC) to publish their performance. This is done to help investors make informed decisions about their investments. This practice has also been adopted by many other countries especially those in the developed countries.
The concept of quarterly earnings has been criticized before. This is because it tends to promote short termism instead of long-term prosperity of the company. This is because at the end of the quarter, if the performance is not good, companies are punished by investors. This has been blamed for the poor capital allocation. For example, if a CEO believes that a $4 billion investment in the company will be good for the long term, he might hesitate doing that because the results will not be seen in the short term.
For people who trade in the stocks market, the earnings season is very important because it creates the most opportunities. Traders pay close attention to a few things. First, they focus on the revenue of the company. This simply means the amount of money the company has made within the quarter. Second, they look at the EPS. This is the earnings per share. It is a number that shows how each share in the company has performed. In most cases, an increase in these numbers affect the price of the stock. If they beat the estimates, the price tends to rise.
However, this is not always the case. This is because investors tend to focus on the future. In this, they focus on the guidance given by the company. The guidance is a view from the management about how the company expects to perform. Even if the company reports poor numbers in the quarter but provides a better guidance, investors tend to buy the stock.
In addition, investors look at specific metrics when assessing the growth of different companies. For example, for a company like Facebook, they look at the number of users added while for companies like auto manufacturers, they look at the number of cars sold.
Finally, investors look at the statement by the company about their future. Many companies tend to make major announcements at this period.
While many companies have started to release their earnings, the official season started on Friday last week. This was after three big US banks released their earnings. These were JP Morgan, Citi, and Wells Fargo. In the case of these banks, traders look at other metrics other than those mentioned above. These include the performance of the various segments such as trading and commodities.
This week, the season will continue. Today Bank of America, Rio Tinto, Charles Schwab and Total will release their earnings. They will be followed by Goldman Sachs, Morgan Stanley, BHP Billiton, Blackrock, Dominos, Interactive Brokers, J&J, IBM, and Netflix. On Wednesday, Abbott Labs, Akzo Nobel, Alcoa, Asos, Danone, and Roche will report while on Thursday, Atlassian, Canadian Pacific, Bank of New York Mellon, Kimberly Clark, Paypal, and Philip Morris will report. The week will end with the release of earnings from P&G, Legal & General, Volvo, and State Street.