Triple Play Comedown

An earnings triple play is when a company beats analyst earnings estimates, beats analyst sales estimates, and also raises guidance.  We consider these the gold standard for earnings as these type of results show fundamental strength and are often met with higher share prices. Using data from our Earnings Explorer database, the pandemic years have seen an explosion of triple plays as analyst estimates were too pessimistic/companies rebounded more solidly than expected.  As shown below, at the highs last fall, a record of more than 18% of companies reporting earnings (on a rolling 3 month basis) reported a triple play. Over the past several months, though, that reading has pulled back considerably and today is only at 10.5%.  While down from its highs, a reading of 10.5% is still elevated relative to history.

Earnings triple plays

As we have noted in the past, when triple plays have been more commonplace, the market response to individual stocks reporting triple plays has been less cheerful.  When the rate at which triple plays exploded earlier in the pandemic, the average full-day change on earnings days tanked to some of the weakest in the history of our data. At the low last July, the average stock that reported a triple play over the prior three months only gained ~1.5% on its earnings reaction day.  For all earnings triple plays since 2002, the average one-day share price response has been roughly +5%.  Recently, stock price reactions to triple plays have been improving with an average gain of 3.1% over the past three months and a little better than two-thirds of triple plays moving higher. As with the triple play rate, that is not fully back to pre-pandemic levels, but it is trending in that direction.  With the number of triple plays expected to be light this season, the stocks that do manage to report them should start to be rewarded again.  Click here to learn more about Bespoke’s premium stock market research service.

Earnings triple plays reaction