What to look for in earnings

We are in the middle of earnings season and here are some of the things to look for in earnings:

During the earnings season hundreds of companies announce earnings.
Most of those earnings are of no use.
What you need to look for is a game changing earnings.
Only 1 or 2% of the companies will have earnings which are really worth jumping into immediately.
Also you must look at where the earning is in its earnings cycle.
Your primary objective to is to find stocks in early phase of their earnings acceleration cycle.
In the stock has been rallying and this is the third or fourth earning acceleration then it has been already priced into the stock.
Prior price neglect is extremely critical when looking at earnings.
Ideally you should be looking for stocks with 3 to 4 months or more of neglect.
When you look at the company earnings look at the magnitude of the earning surprise.
On a day-to-day basis, many companies beat earnings by one or two cents.
Those companies are not worth a second look.
Also when looking at the earning look at it whether there is the analyst estimate on it.
Primary look for companies with no analyst estimate or only 1 or 2 analyst covering the stock.
If the company doesn't have analyst estimate it tells you that it is a neglected company.
If the company has analyst estimate then you should look for consensus earning numbers or Whisper numbers.
If a company beats consensus earnings estimate by a wide margin then it is attractive candidate.
You also made to look at whether company preannounced earnings or guided higher.
In such cases, the real earnings announcement does not move the stock.
How you look at earnings also depends on your trading style.
If you're primarily a daytrader, then any earnings beat is worth looking at.
But if you're looking for a longer duration move then you need to concentrate on extreme earnings. Extreme earnings growth of 100% plus from a big base.
Companies over the years have become better at managing their earnings.
So, they skillfully manage investors expectations.
They preannounce or guide higher or lower the guidance ahead of the earnings so that there is no earnings shock.
In spite of such earnings expectation management, earnings surprises happen.
That is where the opportunity is

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