Lesson 30
5 min

What is earnings season?

At the end of every quarter, the earnings season begins as publicly traded companies share extensive financial information in their quarterly reports. Savvy traders remain vigilant during this period as the potential increase in volatility can inform future investment strategies and present profitable opportunities. Let’s take a closer look at earnings season and how traders get the most out of their investments during this period.

What is earnings season?

Earnings season is the period after each fiscal quarter when companies release detailed reports on corporate performance. Also referred to as “reporting season”, this period occurs during the first month of a (new) quarter and the reports provide details on items such as net income, profit and loss statements, earnings per share, sales revenue and more.

Earnings season traditionally falls within the following periods:

First quarter ends March 31: Earnings season for the first quarter is mid-April to mid-May.

Second quarter ends June 30. Earnings season for the second quarter is mid-July to mid-August.

Third quarter ends September 30. Earnings season for the third quarter is mid-October to mid-November.

Fourth quarter ends December 31. Earnings season for the fourth quarter is mid-January to mid-February.

Though the publication of these quarterly reports is not mandatory in some countries, a growing majority of companies opt to participate in earnings season owing to increasingly multinational structures of business in numerous industries.

What is an earnings calendar? 

An earnings calendar is a timetable of release dates for the quarterly financial results of publicly traded companies. As there is no uniform release date for the data, the calendar is a useful tool for laying out the scheduling of future report launches. 

In these calendars, companies are typically clustered by industry and can be filtered by different factors such as market cap, historical data, revenue forecast and earnings per share (EPS) estimates. All of which can provide valuable insights for traders when evaluating a company's financial performance and future prospects.

Why is earnings season important for investors?

Earnings season is a great time for investors to evaluate their current position and assess the trading landscape. The deluge of information shared in the period can provide important insights into a company’s performance as well as its future outlook, and investors can seize the opportunity to speculate. For example, traders that are looking to invest in stocks or already hold shares in a company, may anticipate that the value of this company is eventually going to increase based on high EPS estimates and room for potential growth. In this scenario, existing investors would typically receive a percentage of that company's income in the form of dividends, and the value of their stock would likely surpass the purchase price of their original investment. 

How do you prepare for earnings season? 

Preparation is key for long-term success on your investment journey and, even during turbulent periods in the stock market, the following factors can help make the most out of each earnings season.

Learn how to read earnings reports

Though reading company reports may not seem like the most enticing prospect for some investors, its importance shouldn’t be understated. Dissecting an earnings report will provide a detailed, well-informed perspective of a company’s recent development and may shed some light on their current performance, whether good or bad. Furthermore, these reports can help connect the dots in regard to the impact of external and internal factors. For example, how did the price development of timber affect the construction industry as a whole? How are the changes by a new management board panning out? Etc. 

Keep the bigger picture in mind

In recent times, the world has been plagued by adverse geopolitical factors, high inflation rates, a global pandemic and many other developments causing uncertainty and volatility in the markets, but it’s important to stay rational when assessing the profitability of companies that you have already invested in. 

Earnings season offers investors insights into a company's outlook. Since a quarterly report can lead to a change in market direction, it is important to use this information in a measured and sustainable way instead of reacting emotionally. Compare solid performance over several quarters as well as a year-on-year time frame and results of similar companies in the same industry. 

How are the company’s fundamentals looking? Is their development stable or not? Is the company posting healthy growth? How is it affected by global developments in the short term, and what are possible scenarios for the medium term? 

Develop your strategy for earnings season ahead of time

Earnings season is important when conducting research on existing holdings, but it’s important to also consider drawing up a trading strategy for this period. Take time to think about your approach towards investing, profit targets, how much time you spend on your investments and your personal risk profile. Are there stocks you have been considering investing in? Is it the right time to invest, or should you wait? 

Inform yourself ahead of time on the season’s most anticipated movers and expected volatility and explore analyst forecasts during your research. However,  it’s good to remember that an expectation is theoretical and actual figures may differ. Then, take the opportunity to catch up on the companies’ latest developments and performance once you have their most recent earnings report in hand.

Assess your experience

Once an earnings season has ended, investors should take the time to review what happened and what changed with their investments. This is also the perfect time to set up a personal investment journal for tracking investments - just like you track your personal fitness, your sleep or other personal goals. Jot down any opportunities that you retrospectively feel you missed and make sure you organise earnings reports and other materials on companies that sparked your interest. Also, mark important dates in your calendar ahead of the next earnings season. 

Take care of your financial health

Whether before or after earnings season, it’s always a good time for financial education. For newbie investors, this knowledge provides the necessary foundation to make informed investment choices, comprehend risk, avoid common mistakes, and give yourself the best chance for long-term success in the markets. For experienced traders who have been investing for a while, the periods in between earnings seasons are the perfect opportunity to look at your portfolio diversification and delve into deep dives on the intricacies of analysis, historic moments in the markets and their effects, and learn more about stocks you are keen to explore. 

The information shared in this article does not constitute investment advice. Investing in financial instruments carries risks. Conduct your own research before concluding a transaction. 

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