Quarterly earnings season is approaching in the US stock market, presenting investors with a dynamic market that can potentially offer exciting opportunities for those who know how to navigate it.

During the last earnings season, Nvidia saw a 24% increase in its stock price the day after releasing its earnings report, while Meta saw a 14% rise after an earnings beat.

Don't get discouraged if you missed your chance last time - quarterly earnings season takes place four times a year, so your next potential opportunity is just around the corner!

During this period, which typically starts one or two weeks after the end of each quarter, a large number of listed companies release their quarterly earnings reports. Well-known examples include Apple, Nvidia, Tesla, and Netflix.

Companies in the financial sector usually report first because their fiscal quarters end earlier than most others, followed by the technology, consumer goods, energy, and healthcare companies.

If companies exceed analysts' expectations and release positive figures, their stock prices are likely to rise.

Conversely, if they fail to meet analysts' estimates, their stock prices may trend downward.

Additionally, since earnings season often leads to significant market swings, it can be an exciting time for short-term investors who are prepared to capitalize on trading opportunities amidst the ups and downs.

For those looking to engage in swing trades during this earnings season, here are three essential steps that may help you decode the financial statements and potentially trade earnings.

Step 1: Prioritize your favorites

During each earnings season, thousands of companies release their announcements, and it can be overwhelming for you to navigate through all the information. Therefore, the first step in trading earnings season is to take your time and get timely information about when your preferred companies will release their earnings reports.

One way to stay on top of company announcements is to use an earnings calendar.

This tool can help you keep track of the dates on which different companies will report their earnings and set reminders for yourself. You can find this useful feature on moomoo.

Simply tap on Markets > US > Earnings Reports. Then you can see which companies' earnings reports are around the corner. If you only want to focus on stocks that you hold, you can filter the results to customize your view. Once you've picked a specific stock, you can tap on the Calendar icon to add its earnings date to your calendar, so you won't miss it.

However, knowing when a company will release its earnings report isn't enough if you don't understand how to interpret it. So let's move on to our next step: compare actual earnings with estimates.

Step 2: Compare actual earnings with estimates

When seeking a company's earnings report, visiting their official website is often the first step that comes to mind. Let's take a random example. If you're interested in Apple's earnings report, you can find it under 'Investor Relations' on its website. However, these reports can be challenging to comprehend due to the presence of multiple tables and the use of financial jargon. Moomoo makes things easier by offering briefings of earnings reports.

Revenue

When examining an earnings report, revenue is typically the most important number to consider. This figure represents the amount of money generated by a company's normal business activities and is calculated by multiplying the average sales price by the number of units sold. In other words, it reflects how much the company earned in the last quarter.

For instance, let's say that Apple sold 10 iPhones last quarter at a price of $1,500 each.

The revenue for the quarter would be $1,500 x 10 = $15,000.

Revenue is typically listed as the first line on a company's income statement, also known as the top line.

Tracking a company's revenue over time can provide insight into its overall performance and growth potential. By comparing revenue figures from quarter to quarter or year over year, investors can determine whether a company's sales are increasing or decreasing.

Let's take a random example. In Apple's 2023 Q2 earnings report, the company reported revenue of $94.8 billion for the quarter ended April 1, down 2.5% YoY. While some investors may see this as a negative sign and predict a potential decrease in Apple's stock price, it's important not to jump to conclusions.

When comparing current data with historical performance, it's also crucial to consider market expectations.

Looking at Financial Estimates on moomoo, we can see that although Apple's revenue fell from $117.15 billion to $94.83 billion, it still exceeded market expectations of $92.9 billion. The most significant revenue source was the iPhone business, which generated $51.334 billion, up 1.5% YoY and accounting for 54% of total revenue. Given the global smartphone market downturn in Q1 2023, this indicates a counter-trend growth.

I would like to show another random example for your better understanding. Nvidia reported revenue of $7.19 billion, down 13.22% YoY. Despite the large drop in revenue, its stock price remained steady and even rose by 24% after the release of its earnings report, thanks to strong fundamentals and expectations.

However, good revenue does not necessarily mean good profit. A company can generate high revenue but still have no profit remaining if expenses exceed revenue.

For instance, if Apple collects $1,000 from each iPhone sold, but the total expense of labor, assembling, and materials also reaches $1,000, then no profit is made.

Therefore, in addition to revenue, it's crucial to pay attention to the profitability metric EPS.

EPS

EPS (earnings per share) is an important metric for evaluating a company's profitability. It shows how much money the company makes for each share outstanding of its stock and is calculated by dividing net income by shares outstanding.

Typically, a higher EPS indicates greater profitability, especially when compared to historical performance.

Just take Apple as a randomly selected example.

In Apple's Q2 Earnings Report of 2023 Fiscal Year, the company's net income was $24.16 billion. This gives an EPS of $1.52, identical to that of 2022/Q2.

Theoretically, a company with strong EPS growth is often considered valuable, while a declining EPS may be be a red flag for potential investors and they need to dig out what contributed to slower profit growth.

However, when interpreting EPS figures, it's important to compare the actual results with the estimates. By referring to Financial Estimates again, we can see that Apple's Q2 2023 EPS beat the estimate, with predicted EPS at $1.429, lower than the actual figure of $1.52.

Along with other indicators like free cash flow and net income, analyzing an earnings report thoroughly can provide a more accurate and informed picture of a company's financial health. However, if time is limited, checking both revenue and EPS can still offer information into the company's earning competence and profitability.

Step 3: Attend Conference Call for Forward-looking Guidance

While revenue and earnings per share provide insight into a company's past performance, an earnings report is also about future prospects. To get a more complete picture, investors should attend the company's conference call to obtain forward-looking statements or guidance.

It's important to note that estimates used just now for comparing revenue and EPS are different from guidance.

Estimates come from external experts in Wall Street or other well-known institutions.

If you scroll down under the company tab of an individual company, you may easily find Analyst Ratings Section, where detailed information of consensus rating, target price and detailed ratings from both institutions and analysts can be found. Those estimates, to some extent, reflect the market expectation and evaluation of a company.

While guidance refers to a company's own projections for upcoming earnings, which can be found during its conference call.

Conference calls often last 30 minutes to an hour and are typically archived on the company’s website.

Investors can also listen to a company's conference call on moomoo, which can be found under the Financial tab, below the Briefing section. As an integral part of a conference call, earnings guidance always includes internal projections for revenue, earnings, and capital spending, offering investors deeper insights into the company's business and economic conditions.

Guidance reflects the company's internal expectations for its future prospects, ultimately affecting market sentiment and investor decisions on buying, holding, or selling the stock. Short-term investors often listen for profit outlooks during earnings calls, as executive comments can cause swift movements in stock prices.

Let's have a look on another random example. Accenture held its conference call at 8:00 a.m on Thursday, June 22, 2023. This is how its price changes when it opened at 9:30 a.m.

If a company's management issues guidance figures that fall below market expectations, analysts may downgrade the stock, leading to a sell-off. Conversely, if the guidance exceeds expectations, it could boost the stock price.

It should be noted that guidance is essentially prediction and is fundamentally unknown today. Nonetheless, it provides information about a company's internal confidence in its growth and overall market sentiment, which can be helpful for investors seeking to make informed decisions.

Summary

These are the three steps you can consider following to make better decisions during earnings season.

Firstly, prioritize your favorite stocks and use the Earnings Calendar on moomoo to keep track of upcoming earnings.

Secondly, compare actual earnings with estimates, with revenue and EPS being critical indicators to watch out for. Revenue shows how well the company is doing its business and earning in the last quarter. However, good revenue does not necessarily guarantee profits since expenses must also be considered. This brings us to another crucial metric, EPS, which shows a company's profitability.

Apart from past performance indicators, we should also consider future prospects. This is where the third step comes in: attending a company's conference call for forward-looking guidance. Guidance or forward-looking statements reflect internal estimates of revenue, earnings, and capital spending for the next quarter, signaling the company's confidence in its growth and market sentiment.

Bank stocks are set to kick off this earnings season with technology stocks following closely behind. Which stock are you eyeing? Try finding your preferred stocks and analyzing their earnings! We hope these steps will help you achieve your goals in this exciting market.

That's all for today. I hope you found this video helpful and informative. If so, don't forget to hit the like button and show your support! If you've utilized features I mentioned above, feel free to leave your thoughts and suggestions in the comments section below. Enhance your trading potential with our stock toolkit, make your investment much easier. See you next time, bye.