There is a lot of chatter about the upcoming “earnings season” which prompted a client question about what exactly that means – and why it is getting so much attention this time around.
Public companies in the US (ie: the ones that trade on stock markets and are available for public investment) are required by the Securities and Exchange Commission (a government agency regulating markets, also known as the SEC) to release financial results every quarter. These results include updates on their balance sheets (what they own and what they owe), their income statements (what they are earning and what they are spending), and oftentimes will also include management commentary and guidance concerning future results (shared in conference calls). As most companies are on calendar year schedules, these quarterly releases tend to cluster in the month following the end of a calendar quarter, which is how the term “earnings season” came to be.
This earnings season (ie: July 2022, in which results thru June 30, 2022 will be shared) is of particular focus to market commentators and investors. With the pervasive narrative of a looming recession, a slow down in earnings (and/or weak guidance from management teams) could add yet another data point for that argument.
Earnings are also a key element in the pricing of stocks. Remember – the price of a stock is the present value of the future cash flows the company will earn, discounted at a prevailing interest rate. Up until now, the market has been mostly focused on the interest rate used to discount the earnings. However, now the earnings themselves are being called into question.
If you want to keep up to date on the earnings releases of your holdings, two tools I find useful:
Earnings Whispers – website that publishes a calendar of all upcoming releases, as well as keeps track of results (in comparison to expectations)
Borsa – This app (available for free download) publishes all the earnings calls in audio form. Nothing like hearing from the management teams themselves!
No one knows how the results will come in – or how markets will react. However, it’s important to realize that these companies are not being run for only one quarter, or even one year – and that you are also not investing for such a short period of time either. Stay focused on the long game and treat this quarter’s earnings season as one data point along the path.
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