What’s An Earnings Call?
You may have heard someone mention a company’s earnings call and how it might play a role in their investment in that company. This can be confusing if you’re not familiar with it. Every quarter public companies have earnings calls, which are essentially just a big report of the number for the company. They’ll cover sales, production of products, revenue, costs, etc. If you’re not a numbers person this can be a bit boring to watch, but they are very important for investors to pay attention to.
Why You Should Prepare For Earnings Calls
Earnings calls are the times where public companies divulge to the world how much money they made. It’s easy to see why this effects the stock price. If a company doesn’t have good earnings, the price will fall. If a company has great earnings, it will rise. The end result is rarely that simple though. Along with what actually happens in the earnings call, you need to be aware of what is expected.
Plan For The Unexpected
There are many times when a company meets expectations, but the stock still falls. This is because they did only what was expected, so it’s not really that surprising and thus doesn’t impress potential investors. What really make the stock jump is when the company was expecting low profit or a loss, and then they pull out a big profit. This can send the company’s stock price soaring! The opposite is also true, if a company has a rough quarter, the stock may fall. In these cases, as long as it’s a good company it’s time to buy. Most good companies will return to normal stock price within another quarter.
Don’t Wait For The Result
Armed with your knowledge of what earnings calls are and how they effect the market, you may be ready to jump in and start investing, but there’s one more key factor to consider with earnings calls, the hype. Sometimes the most profitable time for investing in a company isn’t after the earnings call, but days before it. The expectation of profit will often drive the price higher or lower than it typically will be. Being able to plan for this regardless of the result in the actual earnings call will give you a bigger advantage when investing.
Earnings Calls Aren’t Everything
While earnings calls play a big role in the short-term price of a stock, remember that there are many other factors to consider. It’s possible for a company to be extremely profitable in a quarter, but if they faced a lot of legal allegations or public issues, the stock may still fall despite the profits. The main thing is to prepare for and take into account the earnings call, even though it’s not the only factor.