Stock Earnings Estimate Revisions
Stock Earnings Estimate Revisions are a powerful force impacting stock prices. Why?
Increasing Earnings Estimates have been realized.
Stocks with rising earnings estimate revisions by Wall Street analysts, have beaten the S&P 500 stock returns significantly and stocks with falling earnings estimate revisions have historically performed worse than the S&P 500. Revisions to estimated EPS have a big impact on dividend stock prices.
Let me explain. This means that when you find stocks whose estimates of earnings are being raised by analysts, they are most likely the stock picks that will outperform the 500 stocks in the S&P. The S&P is the standard by which all other stocks are measured by analysts, but also by most independent investors. In addition, the stocks most likely to be on the decline are the ones whose estimates are being lowered.
Institutional investors and individual investors
Managers of Mutual Funds, Investment Banks, and Hedge Funds, etc
Return on Investment
are investors that we consider as professionals who manage the huge sums of money invested in their accounts. Individual investors are people who independently invest in their own private accounts. Institutional investors actually move the market up or down due to the large funds with which they invest. In response to these trades, the market has a tendency to join-in. Therefore, stock market prices tend to move in the same direction as these institutional investors.
You Can Benefit
By getting into the stocks that are highly touted, you can benefit by following these professional estimate revisions. Because they focus their energy on earnings estimate revisions you can put them on your own radar. If you follow the earnings estimates used in this particular classic valuation model, then it will eventually lead to a higher fair value for the company’s stock price.
- Institutional investors act on these changes in estimates of earnings.
Return on Investment - Typically buying up stocks with rising earnings estimates.
- Selling those with falling earnings estimates.
It’s obvious; an increase in the earnings estimate soon leads to a higher price for the stock and bigger gains for those who invest. And since it can often take institutional investors weeks, if not months, to get large sums into a stock, what’s the strategy?
Here’s The Strategy
It may take days, weeks or months for the large investor to accumulate a solid position. So, the individual investor who follows Wall Street Analysts, can get in the stock sooner. The independent investor who understands the earnings estimate revisions (as touted by Wall Street Analysts) has an advantage over these larger investors, and can benefit by the institutional buyers untimely activity.
Stock Shares
The typical analyst at a brokerage firm will work overtime for weeks, analyzing a bevy of stocks on a portfolio of maybe 10 to 20 companies. Many companies are followed by several analysts who dedicate their time to this task. One of their main jobs is to determine what will be the direction of a company’s earnings. This is their forte: Company Earnings Estimate. Take a moment and consider this: Earnings per share (EPS) is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. Now, let’s look at an example: You will find online investment sites have FREE EPS statistics available. Choosing Yahoo, If you lookup IBM in this Yahoo link, you'll find financial information for each stock. Click on the Yahoo link and look for EPS estimates. You will see how one FREE site can give you quick research. Beginning investors need this FREE research.
If you find my example of free research information profitable, then sign-up for my newsletter and next month consider my premium membership where I condense much of my own research.
I will be relating my own research findings from many sources and calculating an average EPS estimate for the stocks featured in my editor’s choice newsletter column. So, follow each week’s column and I welcome all comments and questions about each in my blog posts and newsletter responses.
Business Stock Growth
The change in earnings estimates have proven to be of most importance. Upward estimate revisions are more likely to receive even more upward earnings revisions in the future. You will find that Analysts revise their earnings estimates slowly and carefully.
For example, if an analyst raised his earnings estimates last week or month, he’s more likely to do it again this month, and the other analysts are likely to do the same. Since stock prices respond to earnings estimate revisions, it’s very profitable to buy stocks whose earnings estimates are being raised. And by getting into a stock whose earnings estimates are being raised, you’re likely getting into a company whose future earnings estimates will be raised as well, potentially influencing stock prices even more.
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