Track Profitability With The Earnings Line

Track Profitability With The Earnings Line

Following a stock's quarterly Earnings Per Share (EPS) is used as a metric to understand the company's profitability on a per-share basis. Investors study companies' quarterly financial reports to understand financial health, evaluate performance, and identify growth opportunities.

The Earnings Line is plotted on your weekly charts as one easy-to-follow data point to simplify the process of digging into reports with fundamental jargon.

What Is An Earnings Line?

Earnings refer to the net profit after a company accounts for all expenses. Per Share indicates the amount of profit allocated to each outstanding share of stock. Every quarter, companies announce financial reports, including their Earnings Per Share (EPS).

The Earnings Line represents the change in EPS compared to the previous quarter and can be represented as a dollar value or a quarter-over-quarter percentage.

The Earnings Line is a quick visual representation that helps investors who rely on technical analysis to confirm that a company is continuously netting a profit and is poised for growth.

Why Use Earnings Lines?

For position and intermediate-term swing traders, the Earnings Line will help keep your focus on stocks expected to grow as it increases its net profits quarterly.

💡 Pro Tip: Top-performing stocks have at least a 30% increase in EPS quarter-over-quarter

Closely monitor stocks that report triple-digit Earnings.

A larger EPS signifies a company is generating profits and is positioned for growth. Investors will increase their position and buy shares as the stock increases its EPS.

When browsing hundreds of stocks, you want to determine the trend quickly. Just like monitoring strong price action, you should also consider financial growth.

A rising Earnings Line indicates the stock is growing while increasing its profits over time

A falling Earnings Line indicates the company has slowed its rate of profitability

On the same price chart, the Earnings Line is plotted as a line to view the stock's net profits quickly.

Correlations With Price

By analyzing the Earnings line, you can quickly understand a company's financial performance.

A company with a constantly rising Earnings Line is profitable and continuously growing. This growth indicates that the company is becoming more valuable.

Keep stocks on your focus list when you see a rising Earnings Line. Institutions that take months to accumulate shares of stock want to ensure the company is showing long-term growth and will continue to invest as the company continues to show increasing profits.

When the Earnings Line is declining, and the price begins to move sideways, look for earnings to increase and support positive price action. As the company starts to make more profits, you should start to see the stock's price rise.

Pay close attention to stocks that report their first profitable earnings, as institutions generally focus on profits. The value of the stock will increase once positive earnings are reported after an extended period of quarterly losses.

Weekly Charts In Deepvue

The Earnings Line indicator is best seen on weekly charts as fundamental data is reported quarterly.

Type “Earnings” in the indicator search to see Deepvue's Earnings Line on your weekly charts.

Track Profitability With The Earnings Line

You will see a green line corresponding to the stock's quarterly Earnings Per Share and a new y-axis displaying the EPS value. Just like any indicator, you can change the color and style.

Depending on your trading style, you can also plot data as a dollar value or a percentage.

Track Profitability With The Earnings Line

In the Inputs setting, change the Type to a dollar or percentage value.

Examples

Take a look at how quickly you can determine growth by visualizing quarterly Earnings as a line on your charts.

Symbol: TMDX
Company:
TransMedics Group
Year: 2024

Track Profitability With The Earnings Line

When TMDX was consolidating near highs, it reported its highest-ever earnings percentage quarter-over-quarter, which propelled the stock to all-time highs.

Symbol: AMZN
Company:
Amazon.Com
Year: 2023

Track Profitability With The Earnings Line

AMZN fell in the bear market of 2022, and its trailing twelve-month earnings percentage also decreased. When earnings finally increased quarter-over-quarter, the price began to rise.

Symbol: GOOG
Company:
Alphabet
Year: 2021-2022

Track Profitability With The Earnings Line
Track Profitability With The Earnings Line 10

At the peak of the 2020-2021 bull market, GOOG earnings per share began to decline. Investors who identified this downturn would have seen red flags before the stock formed a long-term top.

Forward Estimates

When analyzing the earnings line, the future outlook should also be considered by monitoring forward estimates.

Track Profitability With The Earnings Line

This provides a visual to display analysts' Earnings forecasts. When screening charts, take note of the direction of the Earnings estimates to build conviction about a stock's growth.

Symbol: APP
Company:
Applovin
Year: 2024

Track Profitability With The Earnings Line
Track Profitability With The Earnings Line 11

Viewing the Earnings Line with estimates gives traders a visual clue to help evaluate future potential for profitability. APP's future earnings estimates are pointing higher as it forms a base just under all-time highs.

Trailing Twelve Month

You can change the settings to calculate the Trailing Twelve Months (TTM) to smooth out the earnings line.

Like a moving average, the TTM averages the past twelve months (four quarters) of Earnings growth.

Track Profitability With The Earnings Line

The TTM Earnings Line represents the average quarterly Earnings over the previous twelve months.

Selecting this option will provide a broader view by smoothing out seasonal fluctuations. This will help you focus on quarterly outperformance as the current earnings report is compared to the average performance over the past year.

Putting It Together

Adding the Earings Line to your weekly charts provides a quick and easy way to monitor a company's financial health based on quarterly profits.

By tracking the Earnings line, you can visually identify companies with consistent earnings growth.

Look for stocks with a rising Earnings Line indicating the potential for future growth.

As with any indicator, the Earnings Line should only be used to help build conviction in a trade.

Incorporate the Earnings Line on your weekly charts to strengthen your conviction in the stock's price movement.

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