This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The 4 Rules of Earnings Season, Plus Tips: Buy Under Armour Next Week, Dump Amazon A.S.A.P.

"Every battle is won before it's ever fought." -- Sun Tzu

NEW YORK (TheStreet) -- The hyper-active and borderline desperate Twitter (TWTR) feeds for Under Armour (UA - Get Report) and Amazon (AMZN - Get Report) illustrate the gap between what many shareholders think is a positive earnings report and what actually is.

Immediately after reporting earnings on Thursday, shares in Under Armour, Amazon and Microsoft (MSFT) popped higher, but only Microsoft continued higher. All three increased revenue. From an operational point of view, they all executed extremely well. But their performance diverged.

Let's examine the differences and how investors can empower their portfolios with other holdings and profit from future earnings releases.

The first rule of earnings season is to never chase a stock unless you're taking a stop loss. If your trading desk doesn't include a Bloomberg terminal or another equally fast wire subscription in unison with computer-directed trading, you're fighting a losing battle.

MSFT Revenue (Quarterly) Chart

The second rule is that only the uninformed focus exclusively on if the company beat or missed earnings expectations. Earnings results are just that, results that report what happened BEFORE. But the market focuses on what WILL happen. Big-money Wall Street fund managers -- the whales that move a stock price -- review last quarter's results only up to the point the data aids in predicting future expectations.

While many are satisfied if Under Armour, Amazon and Microsoft outperform their previous quarter, fund managers closely scrutinize margin trends, forward guidance, growth rates (or lack thereof), competitive influences, management changes, cash flow, dilution and other factors. They are painting a picture of the next quarter, the next year and beyond.

The third rule is that one quarter doesn't matter. That's a hard one for many to understand in the heat of battle. Patterns can't be found in sample sizes of one. Fund managers plug a given company's results into spreadsheets and compare the results with previous quarters to find hidden patterns and trends.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AMZN $659.59 0.00%
UA $43.94 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs