It also helps to compare the results with previous quarters as well as with the management projections so as to understand whether the company has met, missed or beaten the estimates. If the company has a disappointing guideline, it will hit the stock and it will dip, but a strong guideline can take the stock higher. Based on the results, analysts will upgrade or downgrade the stock and it will cause stock movement. Hence, earnings are a crucial part of the stock market as they affect traders, shareholders and analysts. While inflation worries have hit the stock market, we can always expect some movement once the results are announced. Investors eagerly await the earnings reports to make their move. Let’s take a look at our selection of the top companies' earning reports this quarter.
1. Nvidia
Tech giant Nvidia is scheduled to report the quarterly results on 25th May. While the tech industry has suffered a lot lately, there is high hope and optimism surrounding the results of Nvidia. One of the top companies in the world, Nvidia is expected to beat analyst estimates and report a smashing quarter with a positive guideline. The management has projected a revenue of $8.1bn, which is a 43% rise from the same quarter the previous year. Nvidia holds an edge in the industry, and it has spread its business across different sectors, including gaming, data centre, cloud computing, and more.
This ensures that the company continues to generate solid revenue year after year. It could be a smart move to buy the stock before the results and then make the most of the spike after the company reports better-than-expected results. However, traders may want to keep an eye on the overall market sentiment before making the move. Rival companies in the sector, such as Advanced Micro Devices, have reported better-than-expected results and this has led to high optimism for Nvidia’s earnings. It beat expectations in the previous quarter and had a very strong guideline for the current quarter. In the previous quarter, Nvidia reported revenue of $7.64bn, and the adjusted earnings were up 53% from the previous year to $1.32 a share with a solid cash flow.
2. Marks & Spencer
A popular name in the retail sector, Marks & Spencer has sparked huge interest among investors. After reporting stellar trades over Christmas, the company reported a surge in sales by 8.9% and hit £3.27bn in the 13 weeks up to 1st January. Despite the surge in competition and rise in e-commerce, Marks & Spencer has held its strong position. The company said that it was confident that the full-year profit would be £500m. It will report the results on 25th May.
After the previous quarterly results, the shares surged 17% based on the positive sales guideline. It will be interesting to see how the company has performed this year, but if it beats analysts’ estimates, then the sales will certainly soar. It is expected that the rise in consumer spending post-pandemic will lead to higher sales and revenue numbers. Even if it lasts for the short term, the stock will benefit.
3. Home Depot
Often called a retirement stock, Home Depot has been around for a long time and it has gained momentum after the pandemic. While most of us were sitting at home, our focus was on improving the different aspects of the space and DIY home improvement gained popularity. Home Depot will report its earnings on 17th May. It has more than 2,300 stores across Canada, the US and Mexico. In the previous quarter, the company beat analyst estimates and reported sales of $35.7bn, and it achieved the milestone of $150bn in sales.
Home Depot managed to grow the business by $40bn during the pandemic, and before that, it took it nine years to grow the business by $40bn. There might be concerns about the sales slowing down or the supply chain issues hampering the growth, but Home Depot is a long-term play. It also attracts dividend investors with a dividend yield of 2.56%. If the company beats estimates, the stock will trade higher, and it is a good time for day traders to make their move. Analysts expect the company to report revenue of $36bn, slightly higher than that of the previous year.
How to trade on quarterly reports
Traders are always looking for an opportunity to make the most of the price movement in stock, and trading by results is to bet on a stock to go up or down right after the company reports the earnings. When traders believe that the company will report better-than-expected results, there lies a high chance that the stock price will go up after the results. Taking appropriate action will help make quick returns. This is a high-risk and high-reward position. As a beginner, it might not be a good idea for you to trade on the earnings reports as the stock can sometimes drop beyond 10%. However, this does not mean that trading earnings is unprofitable. The stock also has an equal chance of going up over 10% in a day.
The right way to trade on quarterly reports is to buy the stock of the company before the date of results and hold it until the results are announced. If the company reports better-than-expected returns, then you will see an upside and make a profit on the stock. However, if the company fails to impress the investors, then there might be a downside. In this case, you can sell out and manage your risk.
What to look for in a quarterly report
- Earnings per share: Traders must always look for the earnings per share (EPS) and the quarterly revenue in the report. They should then check whether the sales as well as the EPS meet, miss or exceed the estimates of the analysts who are covering the specific company. In case of a variance, there will be an impact on the stock and it could be an opportunity to make the move.
- Compare the guidance: A lot of companies issue guidance that provides the expected results for the upcoming quarter. Once the company reports quarterly earnings, it is ideal to compare the guidance with the previous forecasts and the current actual numbers. It will have an impact on the stock price, and the trend in the predictions could be highly useful for traders to make their move. If the management has positive guidance or improves the previous guidance, the stock could get a boost. In contrast, if the company adjusts the guidance and lowers the revenue and sales numbers, the stock might see a dip in the short term.
- Earnings and sales growth: A very important criterion for vested stockholders is earnings and sales growth. It is important to compare the stock’s data over a period that is more than a quarter and check whether the company has shown consistent growth in terms of sales and earnings. Companies that manage to grow their earnings and sales steadily often do well in the long term.
- Stable balance sheet: A stable balance sheet enables investors to understand the health of the company. When a company consistently grows its revenue and earnings every quarter and year after year, it has the potential to do well in the market. As traders, it is important to watch out for any red flags or irregularities in accounting to make sure that everything is genuine.
- Cash flow: An analysis of the cash flow is important for investors to understand the way that the company manages cash. When there is more cash coming in instead of going out, positive cash flow will occur. This means that the company is making more money than it is using on a quarterly basis. Whenever companies manage to report double-digit earnings and sales growth, they tend to have a high positive cash flow.
- Accounts receivable: Not all traders tend to focus on the accounts receivable, and if overlooked, you could miss some red flags. There are some warning signs that can show potential red flags to the investors. The inventory and accounts receivable must grow at the same percentage as the sales. When the sales grow at 15%, the account receivable should not grow at 35%, and if it does, then it could pose problems for the company. Receivables should not be growing faster than the revenue, and this is one thing that traders should check.
Earnings trade strategies
Let’s take a look at the different trading strategies you can use to make a trade based on the earnings results:
- Stock market: Keep an eye on the general stock market. How does it look? Is it in a slump? How has the market performed over the past few weeks? If the market seems to be in trouble, you need to be very cautious and trade only those stocks that you are highly confident about. In a slump, even stellar results cause a dip in the price.
- Stocks in the same sector: Compare the stocks within the sector and see if they reported good numbers. For example, check how the overall IT industry is performing before you pick an IT company to invest in. There will be companies that do business with each other, and many companies report earnings before the target company.
- Stock movement: Consider the recent movement of the stock using your research. Has the company beat estimates in the past? Is it one of the top companies in the industry? What do analysts think of the company? If the company has reported a strong number, there are high chances of it repeating the same. A higher trade volume after the earnings announcement is a good chance to make your move.
- Stock charts: Besides the projects and analyst expectations, consider the general trend of the stock using the stock charts. When it looks bullish, there is a high chance of it remaining bullish.
The bottom line
Traders need to keep in mind that earnings will have a positive or negative impact on the stock movement, and reviewing the earnings report as a shareholder will help you understand how the business is doing in comparison to the other companies in the same industry. Even if the market is in a slump, positive earnings can take the stock higher. Sometimes, even blowout quarterly earnings have no impact on the stock. This is why studying the earnings and comparing them with the previous year’s numbers will help you make the right decision.
It will also foretell how bigger the changes will be in the economy and their ultimate impact on your portfolio. Watch out for these three companies to report earnings over the next few weeks and place your trade accordingly. Investing in some of the top companies will ensure good returns, but research is essential. Traders enjoy the earnings season as it is an opportunity to make the most of the stock market movement.
Learn about more ways to trade in the earnings season with AskTraders’ trading guides.
