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Earnings Reports, Warnings, and Whispers |
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This is one of the predictable rituals played out four times per year in the market. Since earnings are considered by many to be the fundamental engine that drives stocks forward, earnings season is never far away from the minds of those who follow the markets closely. |
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Because different companies report earnings according to their individual business year, the ritual of earnings reports tends to get dragged out over at least a two-month period. And when it isn't yet time for actual earnings to be released, traders are paying close attention to any preannouncements that companies may make as to whether they will fall short, meet, or exceed their own projected numbers and the assessments of independent analysts who cover the company. |
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In addition to possible preannouncement earnings warnings by companies which can cause a stock to tumble, there is a further phenomenon being played out that relates to earnings. And that is the enterprise of those who guess what the "whisper" number may be. The whisper number is what analysts unofficially think the earnings will come in at, usually exceeding the stated numbers by the company. This is why a company can meet the expectations they had set and yet still watch their stock take a divethey fall short of the whisper number that has been set by a number of analysts. |
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The whole enterprise related to earnings often appears strange and nonsensical to the uninitiated casual investor. He or she has a difficult time understanding how a stock can rise and fall simply because a company misses its earnings projections by a penny or two. How can it make such a difference? It's only one business quarter, anyhow, right? Why punish a stock when it measures up to expectations but falls short of a whisper number? This is where the psychology of the market plays such an important role. If investors pay a premium for high-falutin tech stocks, then they want their expectations not just met but exceeded. |
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The casual investor is further mystified by the importance of the conference call that is coupled with the earnings release. One of the ways you can tell that you've become a very serious online investor is when you have the interest to tune into the conference call of the companies you're following. They are available on broadcast web sites, as well as by telephone, and are played at varying times, so anyone with the interest can find a time to listen. |
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