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How to Navigate the Earnings Parade Route

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December 21, 2016
Corporate stock earnings analysis.

Most parades include marching bands, floats and politicians commemorating a special day or event. In the world of business, the earnings parade might not include all that pomp and circumstance, but it’s a period when investors get a live look at the goings on in publicly held companies.

Corporate Show-and-Tell

Every three months, or once a quarter, publicly held companies are required under Securities and Exchange Commission regulations to let the people who own stock in their companies—shareholders—take a peek at what’s making the firm’s engine run, or sometimes, sputter and stall.

Consider it “show-and-tell” for public companies, which must open their books to furnish investors with the numbers, outlooks and summaries of their operations. Companies generally supply their top line sales, the flow of money and their bottom line income. And, increasingly, many top executives offer an outlook of what’s ahead in the current quarter and beyond. At times, that crystal gazing may hold more weight with analysts and traders than the results of the previous quarter.

Different companies offer different metrics that may better explain their fundamental operations. Retail companies, for example, will talk about same-store sales, a key measure that compares sales at stores open longer than a year. A bank may address loan growth and capital ratios, which measure the bank’s available capital to the risk on its books. Social-media companies like to point out subscriber statistics or daily usage numbers.  

More than Just a Snapshot

Among the more salient numbers companies present are earnings per share—the dollars and/or cents of company’s profits divided by its outstanding share—which analysts use to help calculate expectations and to judge performance.

As a result, earnings season may sometimes usher in share price volatility. Typically, when companies meet or beat Wall Street’s expectations, traders will react favorably to the stock, juicing share price. On the flip side, a miss or lowered forward guidance from the company’s top executives may pressure the stock price.

But company earnings are not just a snapshot in time. All those figures and ratios can be thought of as data points in the larger picture, if you look at a time series of quarterly earnings, sales, profit and such. And if you wish to go further into the weeds, you can consider the number of earnings “beats and misses,” share price, volatility and other concurrent data.

Making Analysis Easier?

Earnings season is crunch time, and robust data analysis may be an important step in assessing the strength of a company in your portfolio or on your wish list. A new tool in the thinkorswim® platform by TD Ameritrade, the Earnings Analysis tab, is an inclusive set of quarter-to-quarter data that may help you better understand the nuances that factor into stock and derivative moves going into earnings season.

The feature offers customized data from Estimize*, a crowd-source tool of earnings estimates from a number of individual investors, with thinkorswim data points that may give investors a bigger picture of how a company has been performing over the last eight fiscal quarters. The tab, shown in figure 1, offers quarter-over-quarter and year-over-year comparisons on gauges like stock price, implied volatility, and historical volatility, for example.

FIGURE 1: EARNINGS ANALYSIS TAB.

To use the earnings tool on thinkorswim, go to Analyze > Earnings.  Chart source: thinkorswim® by TD AmeritradeNot a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

The earnings parade, like the hometown holiday parade, can be fun and enjoyable, but it’s best if you have a good seat and a clear view.  For more on the new earnings feature, have a look at the video below.

For more information on the trading platform, and for details specific to this new tool visits the Earnings release update.

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