Thread by @InvestiAnalyst

How To Analytically Assess An Earnings Report.

Outline of this Thread - What To Do:
• Pre & Post Earnings
• During the Earnings Call
• Key Metrics to track
• The Psychology

Earning can be a merging of multiple expectations (h/t @jackbutcher)

A Comprehensive guide below:🧵

2/ Why should you care:

• Earnings report (ER) are crucial times
• *Many* Institutions have their expectations & are ready to increase/Initiate/Decrease position which lead to big stock movements
• It determines future of a stock

Chart by @jaminball - show how stocks react:

3/ First; what defines an excellent earnings:

Formula: Actual - Expectation = The % of Surprise

... Determine big stock movements.

Factors:
1⃣ How much a company beats the Analysts estimates on Earnings, Revenue & Guidance
2⃣ Customer acceleration
3⃣ New product launch/ M&A

4/ Pre-Earnings: How To Prepare:

• Know the analyst estimates for earnings & revenue!
• Review previous ER & know the past guidance
• Importantly, develop your own model of what you expect from the company metrics!
• Position size

Prepare mentally for a 50-50% scenario!

4i/ Actual ER - On Revenues:

• Separate btw organic & acquisition rev growth eg. $TDOC
• Be aware of easy comps/extraneous factors (seasonal adjusted)
• Comparing year-over-year revenue growth is great.

However, sequential QoQ growth is more important.

Ideally this ⬇️

ii) On EPS:

• Review the estimates and % beat rates.
• Are earnings improving or is there a good reason why it is decreasing?
• Knw GAAP v Non-GAAP
Phenomenal companies produce something like this eg. $NET $CRWD

They do big beat on expectations and EPS are revised higher.

iii) Metrics to watch
- Revenue metrics are good, but bottom-line metrics are more important:

Evaluate:
✔️Evaluate Costs
✔️Examine Operating Leverage, Margins, FCF, N.I.
✔️Customer growth: (track paying members, DAU's) & watch QoQ growth
✔️Net retention ($)
Eg. $DOCU is a🌟

4/ The Earnings Call:

• Be familiar with past ER Call and did Mgmt make a promise? Watch for consistency!

• Mgmt always present the "nice" information on the press release and during the call. Dig deeper

• However, pay closer attention to the analyst questions and MDA Notes

5/ Post-Earnings Call:
• Decide what you'll do!

• Be prepared for 50-50 situations

• Stock reaction especially by market 3-5 days after an ER is a signal. Its a combination of smart institutions

• Don't focus on Analyst price target, watch d. change in estimate revisions

6/ Psychological emotions:

Quarterly earnings bring the biggest moves.

If a company produces an excellent report & it moves up like 10% - Don't be afraid to buy.

It's important to avoid price anchoring b'cos generally institutions will buy post ER, if its A+ report
Eg. $ZM

7/ Opposite: Great report, but gap-down ($PINS)

Sometime institutions have reasons for selling..

This is important. As a long-term investor, if the company achieves all your metrics but gaps-down.

Also, sometimes it may turn out like $CELH⬇️, it retraces by 50% up

Be Patient!

8/ Factors to watch:

✔️GAAP vs Non-GAAP Earnings can be confusing based on the way companies report their results.

For example: Inconsistent Stock-based compensation, adjusted earnings etc.

✔️🧶I will highly recommend reading @MrBuyside note here
mrbuyside.substack.com/p/a-look-at-no…

9/ If you want to deep deeper, it's important to have a basic understanding of financial reports

✔️If you are a new investor struggling to interpret Financial Statements.

I suggest visiting @RamBhupatiraju thread on Fin statements.

10i/ Best Application Resources for Earnings Season:

1⃣ - Estimize - Accuracy on earnings estimate
2⃣ - TipRanks - Analyst notes and commentary
3⃣ - Koyfin (Seeking Alpha) - Earnings call transcript // Earnings & Revenue estimates
4⃣ - Earnings Whisper - Comprehensive dates

10ii)
@dhaval_kotecha shared two key resources this week to improve productivity:

@QuartrSE - They help break down Conference call presentation, earnings and transcript PDF's are available. See below

He also shared a Spreadsheet format that helps breakdow reports.

10iii/ Best Newsletter to sign-up to see examples:

1⃣ Weekly:
- Sign up for @eWhispers & @jaminball

2⃣ Monthly:
@StockNovice writes a detailed monthly recap.

3⃣ Quarterly:
a) @adventuresinfi
b) @jaminball provide phenomenal detailed quarterly SaaS recap.

Check their bios.

11/ To wrap up:
Know the Lifecycle of a company:

✅As a company evolves, there are different metrics to gauge a business true momentum on Earnings

✅As a company evolves, more emphasis should be placed on bottom-line metrics. and vice-versa.

The chart below should very useful

12/ Other factors play a role:

- The stage of the market cycle
- Market Conditions
- Easy comps
- Institutional Investors have different goals

Over the long-term, companies that consistently beat those metrics above always win.

13/ Generally,

🚩Set red flags or be skeptical about companies that show may show great YoY growth,

But sequentially, company shows a high fluctuation, inconsistent variations in

✔️ Lumpy QoQ growth
✔️ Rising Cost
✔️ Bumpy Customer acceleration
✔️ Inconsistency with Mgmt

14/ Bottom-line

✅Know ER dates
✅Keep clean notes and a record
✅Be prepared by knowing analyst expectations
✅Biggest ER factors: Earnings, % Surprises & Guidance
✅Prepared mentally (and realize even after a good ER, stocks gap down.)

Business Momentum is key!

15/15 END: Always zoom out

If you have a long-term horizon:

✅Quarterly reports are like days. They are short-term and either help build conviction or not

✅People have sold multi-baggers on one poor earnings report or captured a golden gem from one

Maintain perspective!

These folks share great insights on earnings:

@investing_city @StockNovice @RamBhupatiraju @adventuresinfi @Soumyazen
and weekly, @StockMarketNerd @richard_chu97

What metrics do you guys watch for?

Through experience, what have I missed out that new investors need to know?

I'll recommend following cc' @HenryChien4 - Henry has 10-years experience on Wall Street as an Investment banker and research analyst at the big banks. He knows the ins and outs. Kindly share your thoughts.

Most charts h/t @jackbutcher.

Thank you everyone.

I will compile all the insights, feedback and incorporate them back into this thread.

The goal is to help many new investors who may struggle interpreting Earnings Report especially this season.

Open to feedback

@UnrollThread Print Thread