One prominent part of trading earnings is keeping an eye on a conference call with market insiders and financial analysts. It is this part of the entire Stock Earnings dance season that is often conveniently ignored by traders. The conference call, which takes place after earnings are reported, is essential to listen to because this part could be a foul play.
Stock price movement and trading earnings
In most cases, the price of the stock moves up when the stock earnings dates are released. As the period of earnings run approaches, around a dozen companies that fall under the category of “high-performing” or good ones will witness higher stock prices in a week preceding actual earnings result. But the significant problem arises when the actual earnings date approaches. What is it then that the investors must do? Should they hold through earnings release in anticipation of the company blowing away earnings number and the price soaring? Or, should the investors sell just in case the earnings aren’t so strong? Trading earnings isn’t everyone’s cup of tea. For years, investment gurus have been giving a mantra of getting ahead of the actual stock earnings release.
Where the rubber meets the road
As much as 70% of the time, the stock tends to sell off just after the company exceeds or meets the earnings expectation. This has been a common scenario in recent campaigns. Most investors tend to buy hearsay about companies. Secondly, no one knows exactly what will happen in the conference call that succeeds stock earnings release. There have been examples when the stock, speculated to mint 45 cents, actually came out with 54 cents, yet the stock dropped. The reason could be management saying in a conference call that the same growth cannot be sustained in foreseeable times. As much as they want to know what’s going on within a company, the traders do not wish to hear anything about unsustainable future growth.
Trading earnings could be tricky with management conference calls that succeed results
On the contrary, there have been examples when the companies that missed their estimates had the stock flying. The reason is simple. In their conference call, the management announced an increase in revenue and sales in the next quarter.
Trading earnings isn’t as simple as it may seem because no one can know what will be said. Holding stocks in a portfolio through earnings is said to be a scenario of poor risk-to-reward.
So, what to do next?
The best bet for investors is to buy stock of the favorite company around a week or so before actual earnings are reported. Then, sell them on the date when stock earnings are released or a day before that. There could be chances of missing the upside, but still, one may be spared the spanking if something unpleasant is said during a conference call.
Listening to the conference call is accessible to all. Investors can register for the call and listen to it on the website of the company. Companies announce the date, time, and estimated duration of the conference call beforehand. So, one can listen to the chatter and make a decision accordingly.
Trading earnings could be the trickiest of all scenarios for the investors. Earnings calendar form a crucial aspect of investors homework. Marking dates could help in making the right decisions on time. Stock earnings season is mostly a turbulent time for investors, and so, one must gear up and tighten the seat belt. There could be a smooth take-off or a dicey landing. However, the worse is emergency landing and stock price blow out. It all comes with its set of advantages and disadvantages.
