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The Impact of Earnings Estimates on Stock Prices

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Earnings,Estimates,Stock Prices

Investors should pay attention to earnings estimates as they can impact stock prices over the long term.

Each earnings season, most publicly traded companies will report results that beat analysts’ consensus estimates for sales and earnings. Positive “surprises” are set up and expected, with a typical “beat rate” of 70% or so. Investors can take a single quarter’s earnings surprise with a grain of salt, especially if the results are only slightly ahead of expectations. But this doesn’t mean you should ignore the estimates.

Over long periods, a pattern of rising estimates tends to drive stock prices higher. And the reverse can be correlated with price declines

 

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