Explain why beating analysist expectations = 40% gain?

[techcrium]

Why is it when a stock beats analyst expectations by a few cents per share equal a 30-40% gain in stock price?

E.g. netflix, tesla, google back in the day

[Lucida]

It doesn't happen to every single company.

[cjottawa]

It doesn't happen to every single company.

Read David Dreman's "Contrarian Investment Strategies." Therein, the author argues (supported by rather convincing data) that earnings surprises have different effects depending on whether a stock is "favored" (high P/E multiple, a "darling" stock like Amazon etc) versus "unfavored" (low P/E multiple) stocks.

Also: "in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine." (Benjamin Graham) I.e: there is an element of investor psychology going into short term market fluctuations and markets are not 100% efficient all the time.

[bgallagher]

How do we time the entry into a stock that is about to make a 30-40% gain?
We enter before the earnings calendar dates?

[ahhchoo]

How do we time the entry into a stock that is about to make a 30-40% gain?
We enter before the earnings calendar dates?

Do you have a time machine, if yes please share.

If you play earnings, you will lose... just buy when it's low and sell later.

[charliebrown]

Most often, the stock would've fallen 30+% leading up to earnings. Take MCP (molycorp) as an example; didnt lose as much $$$ as expected so jumped 31% today (bringing you back to prices in Feb/13)

[bgallagher]

This sounds like a too risky game. I am scared for my hard earned pennies.

[Rickson9]

This sounds like a too risky game. I am scared for my hard earned pennies.

That's the primary reason most individuals are bad at investing.

[elwebmaster]

I have only been investing for a couple of weeks but I already learned this strategy the hard way. Never buy any stock if you don't know when the earnings call date is. This one announcement totally changes the picture. My strategy:
1) Check when is the earnings call
2) Before the earnings call research the company. How has the company been doing during the year compared to previous years?
a) Doing good: ok, buy stock, but be careful, look at competitors, make sure stock hasn't gained much the week before the call, this is riskier than b)
b) Bad. Bad IS Good! Wait for the earnings call. Most likely the stock will plummet. That's how emotional most investors are. Wait until you see the big drop on the chart. Then buy (same day though!). Even if the stock continues to go down, don't worry, remember Warren Buffett: "don't lose money" (meaning don't sell on red!).
3) A day (or two) later:
a) If the stock went up during the call: SELL!!! Don't wait any longer, it's not going to go any higher (may be a bit, then back down). Investors get excited easily, don't be one of them. One report doesn't mean anything compared to the performance of the company throughout the year.
b) If the stock went down during the call: HOLD! This stock will likely go up slowly (meaning much higher than what you bought it at). Ideally wait for the announcement of a new product or partnership or discovery. Then sell. As soon as investors start getting overly excited, sell!

[cjottawa]

How do we time the entry into a stock that is about to make a 30-40% gain?
We enter before the earnings calendar dates?

You don't. Nobody does consistently. They get lucky from time to time (the stories you hear about) and they fail most of the time (the stories you don't hear about).

All of the questions you're asking have been answered in detail in a number of books on investing. A few I'd recommend:

"Millionaire Teacher"
"The Wealthy Barber Returns" (don't buy the original "Wealthy Barber")
"The Investor's Manifesto" or the significantly longer and more detailed "The Four Pillars of Investing"

[bgallagher]

I have only been investing for a couple of weeks but I already learned this strategy the hard way. Never buy any stock if you don't know when the earnings call date is. This one announcement totally changes the picture. My strategy:
1) Check when is the earnings call
2) Before the earnings call research the company. How has the company been doing during the year compared to previous years?
a) Doing good: ok, buy stock, but be careful, look at competitors, make sure stock hasn't gained much the week before the call, this is riskier than b)
b) Bad. Bad IS Good! Wait for the earnings call. Most likely the stock will plummet. That's how emotional most investors are. Wait until you see the big drop on the chart. Then buy (same day though!). Even if the stock continues to go down, don't worry, remember Warren Buffett: "don't lose money" (meaning don't sell on red!).
3) A day (or two) later:
a) If the stock went up during the call: SELL!!! Don't wait any longer, it's not going to go any higher (may be a bit, then back down). Investors get excited easily, don't be one of them. One report doesn't mean anything compared to the performance of the company throughout the year.
b) If the stock went down during the call: HOLD! This stock will likely go up slowly (meaning much higher than what you bought it at). Ideally wait for the announcement of a new product or partnership or discovery. Then sell. As soon as investors start getting overly excited, sell!

Thanks for the advices. I've also only been investing in stocks for a couple of weeks and I've already bought tons of stocks in my TFSA, .
I'll settle down and do the readings before doing anything with my taxable account, which is currently a "hybrid" passive couch potato model portfolio.

[brunes]

That's the primary reason most individuals are bad at investing.

I don't think that encouraging someone who is new to investing to go after day-trading on earnings announcements to be the best long term strategy.

OP your best bet is to ignore earnings annoucements altogether. Look at the 3-5 year picture. The comings and goings of a company on a quarter by quarter basis are not as important as their long term strategy and growth potential.

[rfdrfd]

OP, you have just pointed out the danger of picking stocks based solely on fundamentals. You'll find examples of BEATING earnings, stock gaps down big time. Or Vice versa.

As someone pointed out, DO NOT buy/short a stock a few days before earning come out. As I've said in other posts, your action for the stock should be AFTER earnings come out. And if it drops into a good demand zone, you buy. If it gaps up into a good supply zone you short. AFTER earnings, not before.

If you are holding a stock for awhile and earnings are coming and you are close to breakeven, then use Options as insurance. Or get out of your position for a profit BEFORE earnings. If your position is already at a loss before earnings tomorrow, then your stop should have kicked you out at a loss by then. Always use stops.

[AntonyLingo]

He's baaaaaaaaaaaaaaaaaaaaaaaaaack

[actng]

How do we time the entry into a stock that is about to make a 30-40% gain?
We enter before the earnings calendar dates?

dafuq?

it could drop 30-40% on earnings date too man