October 24, 2019

How Can An Earnings Report Affect Stock Price

Stock prices can rise and fall based on a company’s earnings performance because profits reveal the financial health of a company and also indicate the economic conditions for earning profits moving forward.  There must be a distinction between long-term investors and short-term traders.  Long-term investors may not be swayed by one quarter of disappointing earnings, but short-term traders tend to think more immediately and favor short-term profits.

It stands to reason that comparisons used in quarterly profit results are performance versus analyst expectations and performance versus the year-ago period. Investors are often quick to reward a stock that surpasses the earnings expectations set by financial analysts and whose profits exceed levels achieved in the previous year.

But the stock market is a “what have you done for me lately” institution.  While it is not always feasible for a company to provide early earnings guidance, investors have proved they prefer companies to be as transparent as possible as soon as possible when it comes to profit performance. Whether a company has good or bad news to share, investors want to know in which direction profits are trending before the actual announcement.

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about the author:

Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.

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