If you’re invested in the stock market, keeping up with quarterly Earnings Reports is a must. Every quarter, publicly traded companies are required to release reports detailing their financial performance from the previous quarter while providing insight into future growth (or potential struggles).

Earnings Reports provide essential fundamental data that can be a game-changer for investors looking to make smart decisions. Once you get the hang of interpreting Earnings Reports, they’re a goldmine of information that can help you decide when to buy, hold, or sell stocks.

In this blog post, we’ll walk you through what quarterly Earnings Reports are, how to read them, and how they affect stock prices. Plus, we’ll share some trading strategies you can use to leverage these reports to your advantage.

What Are Quarterly Earnings Reports?

A Quarterly Earnings Report is a comprehensive document issued by publicly traded companies every three months to provide a snapshot of their financial health. These reports detail essential financial statistics from the past quarter and provide insights or projections regarding future growth potential.

To quickly assess a company’s financial health investors need to analyze the following metrics.

• Revenue: Total income from sales and services.
• Expenses: Costs incurred during the quarter.
• Profits: The financial gain, calculated after subtracting expenses from revenue.
• Other Financial Metrics: Such as Gross Margin, Operational Cash Flow, and Future Guidance.

Earnings reports serve as a vital tool for investors to evaluate the fundamental strength of a company. By analyzing these reports, investors can determine if a company is poised for future growth or experiencing difficulties, informing their decisions to buy, hold, or sell stock.

Both analysts and investors monitor quarterly earnings reports to:

How Quarterly Earnings Reveal Financial Health

Quarterly Earnings refer to a company’s net income over a quarter-over-quarter period, also known as a fiscal quarter. This figure represents the total revenue minus expenses, taxes, and other costs for that quarter.

A company’s ability to consistently generate positive earnings is often seen as a sign of financial stability and growth potential making Quarterly earnings a critical measure of profitability.

When a quarterly earnings report is released look, for positive growth quarter-over-quarter by comparing the current quarter fundamentals with the same quarter last year. For Example: When the second quarter Earnings are released, compare the growth from the previous year’s second quarter.

The strongest stocks show at least a 30% Earnings growth quarter-over-quarter with the elite performers showing triple-digit gains.

Another key aspect of the fastest-growing stocks is seeing accelerated growth when comparing subsequent quarters. Look for three consecutive quarters with an increase in quarter-over-quarter gains.

Why Quarterly Sales Matter For Business Growth

Quarterly Sales represent the total revenue generated from the sales of goods and services during a fiscal quarter. It’s a gross figure, meaning it’s calculated before any deductions like expenses or taxes.

Strong sales growth shows increasing market demand and positive sales trends. But if sales start declining, it can be a warning sign of internal issues or market challenges that need attention.

In the same regard as Earnings, look for positive Sales growth quarter-over-quarter. By comparing fundamentals with the same quarter from the previous year, you account for seasonal variations ensuring that the observed growth reflects true business expansion. The idea is to confirm a pattern of financial growth.

The strongest stocks show at least a 30% Sales Growth quarter-over-quarter with the elite performers showing triple-digit gains.

Remember to look for Acceleration in growth. Pay close attention to stocks that are accelerating sales in three or more subsequent quarters.

Understanding Triple-Digit Growth

Triple-digit growth refers to a company experiencing growth rates of 100% or more quarter-over-quarter, whether in Earnings or Sales. This kind of explosive growth signals that the company is rapidly expanding, often outpacing its competitors, and can provide investment opportunities with significant upside potential.

The CANSLIM investing strategy, created by William O’Neil, targets stocks showing strong growth in both Earnings and Sales. According to O’Neil, one of the key indicators of a strong stock is at least 25% Earnings and Sales growth in the most recent quarter. Stocks with triple-digit growth can be even more promising especially when paired with accelerated growth across subsequent quarters.

When a company shows triple-digit earnings growth, it’s often seen as a strong indicator that the business is on the rise. Historically, many of O’Neil’s biggest stock market winners had triple-digit growth before their stock prices took off.

Focusing on triple-digit growth helps narrow down your watchlist to companies with the strongest momentum. When the overall market is performing well and leadership is broad, finding stocks with this kind of growth can point you toward the ones that will outperform the market.

Using Earnings Reports For Investment Decisions

Stock prices can be highly volatile during earnings season, the period when most companies release their quarterly earnings reports. Investors and traders react to the new information, which can lead to big swings in stock prices.

If a company’s earnings report exceeds expectations, its stock price usually jumps. Sometimes, this can lead to dramatic price increases, especially if the company shows significant growth potential.

Conversely, if a company misses expectations, its stock price often drops. This can be a nerve-wracking time for investors, as large institutions may sell off shares, causing a significant price decline.

LC gapped up after an earnings report and went from $20 to $40+ in a matter of only a couple of months. This is a great illustration of how a company can make a massive run after a positive financial report.

FSLY had multiple gap ups and gap downs during a later stage base. The initial gap up in May of 2020 set the move in motion, but subsequent gap downs in August and October of 2020 ended its run.

APP began getting accumulated when the future estimates showed signs of potential growth. When they reported their first positive earnings report it was also a triple-digit gain. The next three quarters also showed significant growth before the massive 2024 advance.

After four consecutive negative earnings reports, AMZN showed a positive quarter with increasing future estimates. As the earnings increased the following quarter the stock’s price continued to rise.

Managing Risk During Earnings Season

Simply knowing how to read earnings reports isn’t enough to manage your investments effectively during earnings season. Stock prices can be unpredictable during this time, so managing risk is crucial to protecting your portfolio.

To adequately manage your risk, you must ensure that any company you hold going into earnings is properly sized and has enough cushion to withstand a poor report, which runs the risk of a major gap in price.

3 Step Guide to Managing Risk

1. Track Earnings Dates: Always know when companies in your portfolio are reporting their earnings. Tools like Deepvue can alert you when a company is about to report, so you can prepare ahead of time.
2. Ensure a Cushion on Your Position: Before an earnings report is released, make sure your position has a cushion. This means ensuring your stock has gained enough value (at least 1-2 times the implied move) so that it can withstand potential volatility.
3. Diversify and Size Your Positions Properly: Don’t put too much of your portfolio into one stock. Ensure that no single stock makes up more than 15-20% of your overall portfolio. Proper position sizing is one of the best ways to manage risk and minimize losses during earnings season.

Deepvue inserts a flag next to every stock in a watchlist with upcoming earnings. You will always know and be ready for when they report. A grey flag signifies the earnings date is within 14 days while the red flag indicates earnings are within 7 days.

How To Analyze Quarterly Earnings & Sales Using Deepvue

Deepvue’s Stats Table gives you quick access to a stock’s Earnings and Sales data, with both reported and estimated figures of their QoQ and YoY growth. Clicking the Stats Table Icon displays Earnings and Sales right below your charts.

This makes it simple to analyze a stock’s fundamentals all in one view. Previous fundamental data appears on the left while Future Estimates appear to the right of a vertical dashed line.

Clicking the Settings Icon allows you to change how you would like the Stats Table to appear.

You can also hover over any quarter to see the percentage of earnings surprise (if the company beat or missed expectations) and the raw numbers behind the data.

Screening

To identify stocks with the potential to increase by 100%, 200%, 500%, or even more, investors should look for fundamental growth with similar characteristics to history’s top-performing stocks. Take advantage of Deepvue’s Screener Presets or create some of your own Earnings and Sales growth screeners.

The CANSLIM screener preset looks for the traditional fundamental growth as originally defined by William O’Neil.

Look for stocks with the latest quarter having Triple-Digit Earnings and Sales growth over 100%.

The top-performing stocks report 30% Earnings Growth quarter-over-quarter, ideally over the past three quarters.

The top-performing stocks report 25% Sales Growth quarter-over-quarter, ideally over the past three quarters.

Research analysts upgrade stocks with significant Forward Estimates as they see potential for future growth.

Key Takeaways

If you invest in stocks, keeping track of quarterly earnings reports is crucial. Whether you’re a seasoned investor or just starting out, understanding these reports can help you make smarter investment decisions and potentially earn higher returns.

Every three months, publicly traded companies are required to release these reports, giving a detailed breakdown of their financial performance.

1. Get Insights Into a Company’s Financial Health

Earnings reports are like report cards for companies – They show how well (or poorly) the company has been performing over the last quarter. These reports include essential metrics like revenue, profit, expenses, and other financial data that offer a clear picture of the company’s financial health.

By analyzing these numbers, you can determine whether a company is growing or struggling, which helps you decide whether to buy, hold, or sell its stock.

2. Gauge Future Growth Potential

Beyond looking at past performance, earnings reports also give clues about a company’s future. Companies often provide forward guidance, which are projections about how they expect to perform in the coming quarters.

If a company raises its guidance, it could signal strong growth ahead, making it a good time to invest. On the flip side, lowered guidance may indicate that the company is facing challenges, which could affect its stock price negatively.

3. Understand Stock Price Movements

Quarterly earnings reports can lead to significant movements in stock prices. When a company beats analysts’ expectations, its stock price often jumps. Conversely, when a company misses its earnings targets, the stock can take a hit.

This volatility around earnings reports creates opportunities for investors and traders. By paying attention to these reports, you can anticipate potential price movements and make more strategic decisions about when to enter or exit a stock.

4. Spot Investment Opportunities

Earnings reports can help you spot undervalued stocks or hidden gems in the market. Sometimes, companies post strong earnings, but their stock price doesn’t immediately reflect this, creating a potential buying opportunity.

On the other hand, if a company consistently beats earnings expectations, it may be a sign that the stock is poised for long-term growth, making it a good candidate for a buy-and-hold strategy.

5. Manage Your Risk

Investing without paying attention to earnings reports can be risky. If a company in your portfolio is about to release its earnings report, you need to be prepared for potential price swings.

By keeping track of when a company is reporting, you can adjust your positions, either by selling ahead of time, reducing your exposure, or preparing to buy more if the stock dips unexpectedly.