by Lance Roberts
Real Investment Advice
Following the end of each fiscal quarter, SEC registered corporations release their financial statements. Typically, investors and the media place a lot of importance on these results. Consequently, stock prices tend to rise or fall based on how the financial results compare to a consensus of estimates made by Wall Street analysts.
Since the beginning of the current quarter (10/1/2016), 76% of the 113 S&P 500 companies that have released earnings results have exceeded expectations. Like so many quarters before, many investors and media pundits are supporting the naïve conclusion that earnings are better than expected. Unfortunately, few investors are paying attention to the measurement tool, expected earnings, to gauge its usefulness as a measure of earnings quality. In this article we uncover the crafty game that Wall Street and corporate investor relations departments’ play to put a positive spin on earnings releases and at the same time give the impression that stock prices are cheap based on forward looking earnings expectations.