Being Wise During Corporate Reporting Season
By Dale Gillham |
Earnings season, also referred to as reporting season, is the time during which publicly listed companies report their quarterly earnings and projected earnings for future periods. Earnings season takes place one to two weeks after the quarter ends.
It is important to note that not all companies report during earnings season because the exact date of a company's earnings release depends on when their quarter ends but irrespective, what do you need to know about corporate reporting season and how you can you make wise investment decisions during this period.
Reporting season is a very active time in the market, where individuals review a company's earnings report to decide whether or not they want to make any changes to their positions. Consequently, you will often see stocks being more actively traded when company's have released their report, as the market reacts to new data.
It is not unheard of to see shares jump 20 per cent or more or to see them fall by this same amount. Take Facebook last week, for example, which dropped 20 per cent in just a single day.
What does corporate reporting season mean for traders?
As reporting season progresses, the share price can fluctuate quite heavily and become volatile, which may make you consider buying or selling these companies. An important thing to keep in mind, is to never trade on speculation, you always want to trade on conformation. That said, if a company is moving down, you should never invest in the hope that someday it will move back up because, in my opinion, someday never comes.
The lead up to reporting season can also result in investors bracing themselves for the bombshell that sends their shares tumbling. So, what happened this reporting season and what do you need to be aware of to prepare for the next round?
Each year there are two major reporting periods for Exchange listed companies — February and August. You can find reporting dates on the company’s website, or contact the company’s investor centre. This way you know in advance when the important dates are for the shares you hold.
It’s not until a company reports to the market that you get the chance to find out what’s going on. However, sometimes a company will make announcements to the market outside of those dates to keep the market informed.
At reporting time, you will quickly see which companies are winners, or where results meet or exceed market expectations, and those that are losers. So, how do you tell the winners from the losers?
For those who are unable to read a price chart to work out how the share price is likely to run, you could rely on someone’s opinion by considering analysts expectations? Or, you could wait for the day of the announcement to gauge the market’s response to the news.
When a stock price has been trading in a strong downtrend, the risk of a further fall remains high. And, a falling share price is vulnerable to negative news.
It doesn’t take much for buyers to run for the hills and those looking to profit from a falling share price to see dollar signs.
So what's happening in the market? Watch the video to find out.