You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Earnings and Stock Price Correlation
- Thread starter pcgeek86
- Start date
In my own opinion, not that fundamental analysis is flaw or something. Different traders will have look at different parameters based on their strategies and time-frames. Any type of analysis has its pros and cons.
One of the "theory" of stock price is the expectation theory (fundamental analysis). Investors and traders evaluate the price today based on the expectation of the company's future performance in their time-frame by looking at a wide array of factors (interest rate (alternatively the FX), macro-economic trend, management, sales...etc). Earnings happen to be one of the many fundamental factors that people will look at in their forecast (P/E multiple for stock selection). You can challenge your friend if the math of the DCF model reflect the price or not using historic dividends. That way you can show how naive he is for looking at a single dot and claiming of seeing the whole picture.
And specifically for earnings, it is prone for accounting manipulation based on how aggressive the company wants to report it. Therefore, it's stupid to think that earning and earning alone can reflect the fundamental of the company as a whole. What about Cash flow?? balance sheet?? most importantly the footnotes!
I am not a fundamentalist as majority of the members of ET are. Open for friendly discussion!
One of the "theory" of stock price is the expectation theory (fundamental analysis). Investors and traders evaluate the price today based on the expectation of the company's future performance in their time-frame by looking at a wide array of factors (interest rate (alternatively the FX), macro-economic trend, management, sales...etc). Earnings happen to be one of the many fundamental factors that people will look at in their forecast (P/E multiple for stock selection). You can challenge your friend if the math of the DCF model reflect the price or not using historic dividends. That way you can show how naive he is for looking at a single dot and claiming of seeing the whole picture.
And specifically for earnings, it is prone for accounting manipulation based on how aggressive the company wants to report it. Therefore, it's stupid to think that earning and earning alone can reflect the fundamental of the company as a whole. What about Cash flow?? balance sheet?? most importantly the footnotes!
I am not a fundamentalist as majority of the members of ET are. Open for friendly discussion!
Thanks for your insight kwancy. I guess my question I was trying to answer was: how does a stock price fluctuate during periods inbetween earnings reports? Sure, maybe a company releases a positive earnings report one quarter, but after the hype is over, the stock price often drops as sharply as it went up. I think the answer I've found from some various articles online is that there is no set in stone answer ... it's supply and demand. That's why I believe that technical analysis, more specifically, trends in stock price and other indicators, is a better ... indicator of future stock price.
It all depends on someone's goals though. I do believe that for long-term investors, they're better off keeping a consistent record of past earnings, present earnings, and future earnings projections.
It all depends on someone's goals though. I do believe that for long-term investors, they're better off keeping a consistent record of past earnings, present earnings, and future earnings projections.