| Here's why stock investors need to pay careful attention to earnings season 'report cards' | | |  | WED, OCT 26, 2022 | | | | Everyone can invest in public companies, from passive investors to active investors and from market professionals to the casual investors.
That's why regulators require publicly traded companies to disclose reports about their financial health, to help all stock investors make informed decisions about whether they should buy shares or remain stockholders. This period is called "earnings season," during which analysts and consumers pour over tons of financial data to try and determine how a company is doing and how it might perform going forward.
Earnings season is an important time for investors, as earnings statements can influence investment decisions. Quarterly earnings reports give insight as to a company's financial health and future forecasts of success. To be sure, earnings season can and will affect your stock-level investment decisions.
If you are considering buying a company's stock, those earnings reports offer a way to gauge the health of its business. What's more, some companies historically see bigger price swings related to earnings so knowing that in advance and by checking various analyst lists can help you to avoid any unpleasant surprises.
Meanwhile, if you own a stock, checking those earnings reports during earnings seasons are a good way to stay up to date as a shareholder. And this information may be a factor in deciding whether to buy more shares or sell some. Even if you don't make investment decisions based on what happens during earnings season, other investors and traders will — and, again, that can affect a company's stock price and, potentially, the broader market.
Finally, analyst estimates for individual companies also offer clues about the future trajectory of the broader stock market.
If what happens in the stock market seems opaque at times, then earnings season can offer some transparency. That's because everyone — from professional money managers to day traders to casual, long-term investors — gets access to the same detailed financial information at the same time.
The bottom line for stock investors is that earnings season offers you a chance to look under the hood to get a handle on the performance of public companies, which can be a helpful tool for all investors. However, it's important to look beyond just one quarter's numbers to get a clear handle on a company's prospects. it's important to recognize that earnings season can be volatile, and therefore to avoid making long-term investment decisions based on this short-term information.
You need to make sure you understand what's really happening. Is the company gaining market share or are they losing market share? Are they investing in their future? That can be more important than looking at just one quarter of performance.
Watching how all of this unfolds can make you a more well-informed investor.
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