How Earnings Reports Can Be Investors’ Crystal Ball

Earnings season is once again upon us. It is that time of the quarter where investors get to see what has been going on under the hood of their favorite company throughout the past three months. These reports give key data points that can help investors reevaluate their positions and decide whether they want to buy more, hold, or sell if the juice ain’t worth the squeeze anymore.

A great example of how earnings can be a roller coaster ride is Netflix (NFLX), which reported Q3 earnings yesterday after the market’s closing bell.

This quarter’s results came in stark contrast to its Q1 and Q2 earnings reports, in which the company predicted it would likely see a decline in subscribers. This move led many investors to second guess their plan to buy shares of NFLX, which is trading at a very steep discount to its all-time high of just over $700.

However, in the report released on Tuesday, the streaming giant reported the addition of 2.41 million net global subscribers, more than doubling the adds the company had projected a quarter ago. The company also posted better-than-expected results on the top and bottom lines. Following the announcement, shares of the company skyrocketed more than 14%.

This is an example of the difference one quarter can make. and of a strong earnings print, again giving pause to investors on whether or not the stock is worth adding to their portfolio.

As investors, we are planning for the long-term. That’s why it’s so important to understand the stock’s value, in addition to the company’s outlook, both in terms of its fundamental picture and its financial picture.

A company’s quarterly outlook is especially important because it can give you an insider glimpse at where management thinks the future will lead. Personally, reviewing earnings helps me figure out if this is a good time to invest. Couple this with a firm grasp of where the price is in relation to historic prices, and this can really give you a clear sign of what your next move should be.

Continuing with the NFLX example, the company started 2022 at a price over $600 a share. Compare that to now…

And we see a massive decline…

Now, this year has been bad for just about every stock in any sector, except maybe energy, so we need to take this massive decline with a grain of salt and again focus on our long-term plan.

With Netflix’s strong Q3 earnings report, an upgrade from JPMorgan (JPM), and the news that the streamer will now be offering a lower price tier that comes with ads in hopes to increase the bottom line, things may be looking up for the company’s future. That’s good news for investors.

This upgrade comes with a lot of hope, as well. In addition to the upgrade, JPM said it sees a 40% upside to the stock, which gets back to the point about the stock’s current value versus its future value. A decline from $700 to just under $300 could mean most sellers have already exited the stock. If you were to start gobbling up shares, now could be the time to do it.

This is how you can use earnings to get a better glimpse into the future, even when the clouds overhead are dark and menacing, like they may be right now. However, like my grandmother always told me, you can’t appreciate the sunny days without a few cloudy ones.

In the case of investing, I would tweak this statement a bit. You can’t appreciate the bull rallies if you didn’t take advantage of the bearish ones.