What makes earnings so special? Earnings are important to investors because they give an indication of the company's expected future dividends and its potential for growth and capital appreciation. Does this mean that low or negative earnings indicate a 'bad' stock? Not necessarily, as many young and growing companies will see negative earnings as they attempt to grow quickly to capture a new market.
At one point, earnings data was limited to a few numbers - the one the company expected and then the actual earnings released. But now, with every quarter, investor's are bombarded with a mass amount of quarterly earnings information - different numbers, different sources, and different expectations. The majority of this information is useless to the average investor. Figuring out the difference between the 'meaningful' and the 'meaningless' can be difficult but is an important aspect to successful trading.
WhisperNumber.com provides an alternative source to the 'meaningless' earnings information found on the majority of financial websites and within the financial media. The 'other' data relies on analysts to provide an earnings consensus estimate. (Suffice it to say that analysts some how maintain power and gain the most media coverage for consistently being wrong and reactionary. In other words, be wary of this data.) Our data does not come from analysts (nor does it come from the great unknown.) For over six years we have collected quarterly earnings information from a vast database of registered individual investors - we call the expectations data we collect whisper numbers. The data is sourced, compiled, and provided for free on the WhisperNumber.com website. The data (and database of participating individual investors) has been reviewed by numerous outside parties including CFO Magazine, Barron's, and leading marketing firm Roper ASW. Aside from being the only 'sourced' and consistent earnings data available to all investor's, it's the only data that has proven itself accurate and reliable.
Earnings Accuracy
So we know there is questionable data out there. But how are the earnings expectations found on WhisperNumber.com different?
Our studies have found that the best earnings expectations data comes from the masses (individual investors), not analysts. After studying the earnings data (whisper numbers) we've collected for the past six years, we've been able to understand some basic patterns or predictive principles that have developed and take place around earnings releases.
One of the primary predictive principles is as follows:
Stock prices have a greater tendency to increase (or decrease) based upon whether or not the actual earnings of a company beat (or miss) the whisper number expectations provided by WhisperNumber.com.
Take a look at the following recent examples of this principle - take special note of the companies that
beat or met the analysts estimates (stock should
rise, right?), but missed the whisper (stock actually fell):
|
| Company |
Symbol |
Report
Date |
Sentiment
Risk Rating |
Estimate |
Whisper |
Actual |
1-Day
Mvt |
5-Day
Mvt |
| 1 |
NOVELL, INC. |
NOVL
|
05/24/2004 |
High
|
0.03
|
0.04 |
0.03 |
-0.77
|
-0.99
|
| 2 |
MANDALAY RESORT GROUP |
MBG
|
06/03/2004 |
Neutral
|
1.11
|
1.12 |
1.30 |
5.65
|
--
|
| 3 |
HEINZ (H.J.) CO. |
HNZ
|
05/25/2004 |
Neutral
|
0.58
|
0.58 |
0.58 |
-0.35
|
-0.44
|
| 4 |
AUTOZONE, INC. |
AZO
|
05/27/2004 |
Neutral
|
1.55
|
1.53 |
1.68 |
2.06
|
3.13
|
| 5 |
MICHAELS STORES, INC. |
MIK
|
05/26/2004 |
Low
|
0.37
|
0.36 |
0.42 |
4.62
|
5.62
|
| 6 |
DOLLAR GENERAL CORP. |
DG
|
05/27/2004 |
High
|
0.20
|
0.21 |
0.20 |
-0.16
|
0.49
|
| 7 |
DOLLAR TREE STORES INC. |
DLTR
|
05/26/2004 |
High
|
0.29
|
0.30 |
0.31 |
2.21
|
2.88
|
| 8 |
TECH DATA CORP. |
TECD
|
05/26/2004 |
Neutral
|
0.49
|
0.49 |
0.59 |
3.99
|
4.93
|
| 9 |
DISNEY (WALT) CO. |
DIS
|
05/12/2004 |
Low
|
0.21
|
0.20 |
0.26 |
0.30
|
0.00
|
| 10 |
SEMTECH CORP. |
SMTC
|
05/25/2004 |
High
|
0.18
|
0.19 |
0.19 |
0.19
|
0.67
|
| 11 |
ALBERTSON'S INC. |
ABS
|
06/02/2004 |
Neutral
|
0.11
|
0.11 |
0.15 |
0.07
|
0.79
|
| 12 |
TENET HEALTHCARE CORP. |
THC
|
05/04/2004 |
Low
|
0.03
|
0.02 |
0.05 |
0.48
|
0.81
|
| 13 |
SYMBOL TECHNOLOGIES, INC. |
SBL
|
05/10/2004 |
Low
|
0.08
|
0.07 |
0.08 |
1.83
|
1.42
|
| 14 |
BIG LOTS, INC. |
BLI
|
05/19/2004 |
High
|
0.04
|
0.06 |
0.06 |
0.23
|
0.77
|
| 15 |
BROCADE COMM. SYS. |
BRCD
|
05/19/2004 |
Low
|
0.03
|
0.02 |
0.03 |
0.35
|
0.85
|
| 16 |
DYCOM INDUSTRIES, INC. |
DY
|
05/24/2004 |
High
|
0.23
|
0.24 |
0.26 |
1.88
|
1.61
|
| 17 |
PIEDMONT NATURAL GAS |
PNY
|
06/04/2004 |
Neutral
|
1.01
|
1.02 |
1.08 |
0.71
|
--
|
| 18 |
ANALOG DEVICES, INC. |
ADI
|
05/13/2004 |
Neutral
|
0.35
|
0.36 |
0.39 |
0.76
|
1.63
|
| 19 |
TARGET CORP. |
TGT
|
05/13/2004 |
High
|
0.47
|
0.49 |
0.48 |
-0.17
|
-0.14
|
| 20 |
TIFFANY CO. |
TIF
|
05/13/2004 |
High
|
0.27
|
0.29 |
0.27 |
-0.59
|
-0.18
|
| 21 |
STAPLES INC |
SPLS
|
05/18/2004 |
High
|
0.22
|
0.25 |
0.25 |
0.35
|
0.89
|
| 22 |
AMERICAN EAGLE OUTFITTERS |
AEOS
|
05/13/2004 |
Low
|
0.33
|
0.29 |
0.34 |
0.02
|
-0.04
|
| 23 |
UNIVISION COMM. INC. |
UVN
|
05/06/2004 |
Neutral
|
0.08
|
0.08 |
0.09 |
0.43
|
-0.66
|
| 24 |
TOYOTA MOTOR CORP |
TM
|
05/11/2004 |
Neutral
|
1.35
|
1.37 |
2.01 |
1.49
|
0.63
|
| 25 |
BEA SYSTEMS, INC. |
BEAS
|
05/13/2004 |
High
|
0.08
|
0.09 |
0.08 |
-2.43
|
-2.47
|
These are compelling examples as they show the stock prices of the companies listed reacting to the whisper number,
not the analysts consensus estimate. The reason? Whisper number expectations are on average a more timely and representative sample.
Determining Earnings Risk
In order to help determine which companies are more (or less) likely to beat the whisper number, we've developed an earnings risk rating. Companies with a 'High Risk' rating have an earnings expectation that is greater than that of the analyst's consensus. With expectations set higher by investors, a company may experience greater losses or gains after earnings are reported depending on whether they beat the expectation (gains), or miss the expectation (loss).
| | High Risk Rating | Low Risk Rating |
| Whisper Number: | Much greater than analysts estimates | Much lower than analysts estimates |
| Stock Movement: | - Higher Reward for Beating whisper.
- Greater Loss for Missing whisper. | - Lower (to no) reward for beating whisper.
- Lower loss for missing whisper. |
There is a greater chance of a company's earnings not beating a high expectation, thus the 'high risk' rating. (From a negative point of view, a very high whisper could be due to unrealistic expectations or over confidence in the stock or markets. A positive point of view would consider the track record of individual investors predicting earnings, and the likelihood that the masses have a 'better-combined' knowledge than the analysts. ) A 'Low Risk' rating indicates a greater chance of beating the expectation, but a lesser impact on the stock price as investors are expecting very little from the company. (Take a look at the majority of low risk rated companies in the sample table above. Notice how the stock was limited in either direction for these companies.)
Historical Data Comparatives
Another important aspect to help understand a company's earnings potential would be a look at historical earnings comparatives. WhisperNumber provides you with a company
Earnings Profile that highlights a company's historical performance against the whisper. You can gain access to data such as the Earnings Performance History (how often the company beat or missed the whisper, plus average stock movement).
Now, of course, no method or service will be 100% accurate or complete. The primary purpose of this article is to provide you with additional knowledge of the data points WhisperNumber offers, and a better understanding of the complimentary and very useful information available on the free WhisperNumber website.
