In the days before a big company reports its results, you will see a flood of articles and analyst notes called earnings previews. They set out what the market expects, what could surprise and what investors will focus on. For beginners, learning to read a preview is a simple way to understand why a share can fall on “good” results or rise on “bad” ones.
What an earnings preview is
An earnings preview is an analysis published before a company’s quarterly or annual results. It usually covers the consensus forecasts for revenue and profit, the key figures investors are watching, recent news that could affect the numbers and the main risks. Previews come from brokers, financial media and independent analysts. Our guide to earnings season covers the wider reporting cycle.
Consensus forecasts
The consensus is the average forecast from analysts who cover the company. It is the benchmark the actual results are judged against. If revenue or earnings come in above consensus, that is called a beat. Below consensus is a miss.
Many markets also have an informal “whisper number”, a higher or lower expectation that investors hold privately. For popular companies, the whisper number can matter more than the official consensus, because the share price already reflects it.
Why guidance often matters more
Results tell you about the past quarter. Guidance tells you what management expects next. For many companies, especially fast-growing ones, the share price reaction depends more on the outlook than on the quarter just finished. A company can beat forecasts and still fall if its guidance disappoints. Our explainer on earnings guidance covers this in more detail.
What a good preview includes
A useful preview goes beyond the headline numbers. It identifies the specific metrics that matter for that company, such as data centre revenue for a chipmaker, same-store sales for a retailer or net interest margin for a bank. It explains what has changed since the last report, such as new products, competition, regulation or leadership. And it sets out what would count as a surprise in either direction.
The best previews also consider how the share price has moved before the results. A stock that has rallied strongly into results may need an exceptional report to keep rising, while a stock that has fallen sharply may only need reassurance.
Non-financial factors
Sometimes the most important part of a results day is not the numbers. A change in leadership, an investigation, a big acquisition or comments on regulation can dominate the reaction. When a company is going through a crisis, investors may focus on what management says on the earnings call more than on the figures. Our guide to earnings calls explains what happens on those calls.
How to use a preview
Before a company reports, note the consensus figures, the key metric and what the guidance needs to show. Then think about what is already in the price. After the results, compare the actual figures and guidance with those expectations, and watch how the shares react in after-hours trading. Large moves are common, and our guide to results-day gaps explains why.
It also helps to be careful with positions held through results. Prices can gap sharply, so sizing positions to survive a big move is sensible.
The bottom line
An earnings preview tells you what the market expects before a company reports. Understanding those expectations helps explain the share price reaction, which is about surprises rather than absolute numbers. If you want to understand how you handle big binary events like results day, take the free Samuel & Co Trading trader assessment.
