I’ve come a long way since I was a beginner investing in the stock market. I’ve had to learn many things over the years and have some costly learning experiences along the way. I don’t want to scare any of you from taking charge of your finances with my last post, so this one is going to touch base on something that had made me a lot of money in a bull market.
Earnings reports are quarterly releases that a company will put out to their shareholders to inform them of their progress over a period of time. The period of time is three months (henceforth, quarterly) where the company did business and either made or lost money during that time.
Along with them reporting their past three month performance, they also give guidance to where they believe the company is going.
Wall street analysts who follow the company will put together their estimates as to what they think the company will announce in regards to their earnings. They look at the company’s past report to see if their estimations were correct and also take into consideration what the economy is currently doing. They look at if the company has had a new product come out during that time and how well that product is moving. They will also look at the company’s competitors to see if they are taking business away from them.
After all the information is put together, they release their estimate on what the earning per sharewill be for the company. If the company’s report is in-line with the estimate, it’s looked upon as a good thing providing that the guidance for their next quarter is a favorable one. The company can also, what Wall street refers to as “miss” their earnings report, which means that they made less than what the analyst predicted. When that happens Wall street will look unfavorable towards that and you will see the price of the stock drop and in some cases drop a large amount. If the company “beats” the estimate and gives a great guidance report as well, you will see the price per share jump by a big percentage gain.
This is where you can make some big money within your portfolio.
In the fall of 2007 a company by the name of Research In Motion (NASDAQ:RIMM) was about to release their earnings report. If you’re not familiar with the company, they are the manufacturer of the BlackBerry cell phones. I was following the company for a few months already and knew the the report would be a great one. The company didn’t miss their last four earnings report and their phones were selling like crazy during the summer months.
I went ahead and bought 200 shares of the RIMM stock a couple of days earlier when the priced dropped for just a day and waited for the report. When the report was released, it not only gave a great earnings, but also stated that it would exceed their previous predictions for the next quarter. In that day alone the stock went up $12 per share and continued for to climb for the next two days.
The reason I shared this story with you isn’t to show off, but to let you in on the different ways to make money in the stock market. Like I stated in the beginning of this post, there can be some costly mistakes as well and I’ve lost thousands of dollars in some of my other earnings report plays. The only way that I feel comfortable with trading on the results of earnings reports is during a bull market. My advice is always to do your research and due diligence on every company that you want to invest in.
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