If you're following the stock market news, you will encounter the financial terms like revenue, net income, earnings-per-share (EPS). They often appear just after the quarterly and annual earning calls. The metrics reflect the immediate operational results of the company and analysts use them to calculate the long-term profitability trend which is concluded in a fair stock price.
In this article, we will take a closer look at the historical EPS for ~200 companies, selecting the most active stocks during the last trading day (which normally include the largest "blue chips" and some other less popular companies). We get the stock price data around the dates of quarterly reports and calculate the price increase or decrease just after the the results announcement.
In the course of this article, we'll try to find answer to the following questions:
- Do all companies try to report very close to estimates? What is big enough Surprise(%) to cause a shock in a short-time stock prices?
- If the spike caused a rapid change in the stock price, does it remain for a several days and can we predict the direction of its movement (so that one can use the knowledge to make a short term investments)?
- Does consistent reporting of a slight positive surprise bring to long-term stocks growth?
- Does a gradual increase in EPS increase the valuation of a company?
The ultimate goal is to find a segment of stocks, which has a high probability of growth during the several days after the announcement of quarterly results.
This article is the fifth part in the series. The previous part 4
was an introduction to the topic: it showed how to scrape one page from finance.yahoo.com on earnings-per-share and concentrated on one reporting period (earning reports in Aug'20, which covered Q2'20 revenues). This part is much more advanced: it takes the whole available history for the selected set of stocks and aims to find investment opportunities rather than a simpler exploratory analysis.