Once every 3 months or quarters, a company has an earnings call where the executives of the company reveal their finances for the last 3 months. They reveal the sales, expenses and provide guidance moving forward.
If you want to stay up to date with any company, it is important to follow these calls. These calls typically move stocks the most. Some people will buy or sell a stock before the earnings call because they are expecting a large movement in the stock price. The movements in stock prices are typically cause by 3 main factors. Top Line, Bottom Line and Guidance. If any of these factors underperform, then a sell off may be likely. If they overperform on any of these factors or all, then it will likely expect a jump in price.
While these 3 factors can heavily affect a stock price, sometimes there are moments where you listen to a companies earnings call and you’re scratching you head, because its moving in the opposite direction of your expectation. This could be an anomaly, or maybe there is something you may have missed.
Top Line
Top line refers to the sales a company has. This is found on the income statement/profit & loss. The sales is always at the top of this financial, and that is why we call is the top line.
Bottom Line
Bottom line refers to the profit a company has. This is also found on the income statement. The profit is always found at the bottom of a financial statement. That is why it is called bottom line.
Guidance
This is probably the most important of the 3 factors. The stock market is always forward looking. Analysts are looking over cash flows, forecasting and making projections. If these metrics get messed up by negative guidance, then I expect the value of the stock will probably decline.
Conclusion
Overall, an earnings call is an important piece of information when evaluating stocks. So it is something that may be worth putting on your to do list when evaluating stocks. Some earnings calls can be used to gauge the macroeconomic circumstances of an economy too. If you hear your realty companies saying that their sales are booming, then maybe the economy could have a brighter outlook.
There is one good mobile app out there called Earnings Calls. This has a large library of earnings you can listen to.
