Earnings reports and seasons cannot be overemphsied in equity investment and trading due to their roles in the movement of company share prices in the short to long-term, just as former determines dividend payouts.
These account for why the share prices of companies with positive earnings and financial performance have rallied significantly in recent times. In summary, because investors ordinarily expect higher dividend payouts, share prices gain, resulting in a situation where capital appreciation trail positive performances.
Overall, corporate earnings for the audited financials for full-year 2021 and Q1 of 2022 have been positive as noticed in the earnings releases of several companies, which accounts for the significant growth in stocks like Ecobank Transnational Incorporated, Vitafoam, Julius Berger, Lafarge Africa, Fidson Healthcare, Total Energies, United Capital and MTN Nigeria.
Also, these improved share prices have largely reflected in the year-to-date 16.21% gain of the benchmark All-Share Index, breaking out the 49,000 psychological line to test 49,638.94 points, ahead of the minor resistance of 49,781.56bps in the process. This rally and buying sentiments could be linked to investors’ interests in companies that have released positive results, as well as the strategic investments in some companies within the period.
The numbers released so far through the Nigerian Exchange portal have been impressive, and can rightly be tagged “better than expected earnings,” which is why they are supporting the market uptrend. The numbers are also giving market players an insight into how they should position In this times of Inflation and uncertainties that comes with a pre-election year, especially as commodities-linked stocks are those that provide safe-havens, capital preservation and growth for investors at such times., as those that can increase price and shift the burden to the final consumers. A jerk up in prices of products and service at such times is usually, resulting by increased revenue, profit and share price growth.
Numbers in equity investment are classified into three groups which are recognized by fundamentalist and technicians in the market arena. Numbers emanating from quoted companies which include Sales revenue, Profitability, Earnings per share, Dividend, Bonus, Net Asset per share/Book Value and Profit Margin etc. Numbers generated by market forces, being a function of the interplay of demand and supply, price, volume and deals. Derived Numbers are generated by the combination of numbers from the companies and the market, Price to Earnings ratio, Price to Sales, Price to book value and dividend yield etc.
Investment in the stocks require a deliberate effort at ensuring that there are more wins and fewer losses, which is why it is important for investors to know what to do per time, relative to the seasons and times in the market.
There are seasons and times in every stock markets of the world. There is the earnings season when results are released; this happens at least 4 times in a year (three quarterly and one full-year results). There is the bullish season when prices are generally up, even if there are no results being released, as well as the bearish season, when prices are generally down. For sure, there are periods when the market trends sideways, which that time when the market is neither bullish nor bearish.
WHAT YOU NEED TO KNOW WHEN TRADING EARNINGS
It is important to know how consistently these companies release their report. The trend of the earnings (increasing or decreasing), and if increasing how significant, in addition to knowing the company’s financial year-end. Earnings release date (very crucial), as companies with high corporate governance keep to this vital aspect of their post-listing requirements. Quality of earnings. Is it weighed down by excessive costs or expenses? Qualification and closure dates (if mark down and the company’s expected quarterly earnings is likely to beat market forecast). Market hearsays (feelers in the market and rumour). As an investor or trader, you can buy into the rumour and sell the news when it hits the market. Other information.
HOW TO PROFIT TRADING EARNINGS
As long as every quoted company releases their quarterlies on a three-month basis, it is the performance rate that actually influences the share price which reflects on the chart for technical and fundamental analysts to see. The “buy into the rumour and sell the news” slogan can also be applied very profitably to rumours that a company will report earnings higher than expected. The idea is to buy the stock early when such the mere rumour of “good news” begins to spread. Then you sell the stock immediately once the rumor becomes a reality.
Identify the expected release date of a target company that has a good track record of releasing positive earnings regularly, with the expectation that the company will beat market forecast in the next quarterly or at full-year. How early or late the earning will hit the market will help you know exactly when to exit the position and the risk level associated with the trade. Two to three weeks to the expected date of the earnings release, check the stock’s chart to see if it is trending higher or bouncing from a recent dip in price. Here you can set a price limit and use a prudent position to also guide the volume of shares to buy. Position early and then wait as the price rises due to the anticipated positive earnings report. Check the price action daily. Sell for a profit when price rally as a result of reactions to positive earning released that hit the market. Make sure earnings of the company you want to trade has a positive projection. Know what the analysts and the market generally are expecting. If short of your projection and market forecast, please sell immediately. When company financials are released, the key financial ratios to focus on are: growth in net profit, Earnings Per Share, Dividend and operational cash flow.
So, for you to invest well in stocks, seek to get hold of what the company’s earnings always look like. Is it improving yearly or quarterly? Is it declining, fluctuating or stagnant? You need to get this information yourself. It is extremely dangerous investing in stocks of companies without results.
In a recovering market like NGX Exchange currently, where PE ratio is still relatively low due to stronger earnings, investors should think medium and long but when opportunity for short-term profit comes, take it. We note that as the market is recovering also it is changing due to reforms and players’ perception. Investors and traders at point should combine fundamental and technical analyses to better their investment decisions for profitable trading.
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