In late 2020 and early 2021, although companies were reporting extremely strong top and bottom line numbers as well as raising forward guidance at a high rate, share prices were reacting very negatively to the news. As shown below in the snapshot from our Earnings Explorer tool, 2,050 stocks reported earnings in the first quarter (1/1/21-3/31/21). For both EPS and sales, 74% of companies beat consensus analyst estimates in Q1, while 15% of companies raised forward guidance versus just 5% lowering guidance. Even with the strong earnings numbers, though, the average one-day share price change for the 2,050 stocks that reported was -0.69%. On average, stocks that reported opened higher by 0.14% in reaction to the earnings news but then sold off by 0.81% from the open to the close of trading.
Although it’s currently the earnings off-season when only a handful of companies are reporting numbers each day, we’re seeing the tide turn lately when it comes to share-price reactions to earnings. As shown in another snapshot below from our Earnings Explorer, 178 companies have reported earnings over the last month. Beat rates remain incredibly strong with 84% of companies beating EPS estimates and 88% of companies beating sales estimates! Guidance also continues to come in hot with a whopping 28% of companies raising guidance versus just 4% lowering.
And whereas strong earnings results were not being met with buying in Q1, investors look to finally be willing to “buy the news” again. The 178 companies that have reported over the last month have averaged a one-day gain of 0.90% on their earnings reaction days. If we break the reaction day up into the initial opening gap and the open to close change, we see that the average stock that has reported has opened higher by 0.76% in reaction to the earnings news and then continued higher by another 0.11% from the open to the close of trading.
As shown in the top-right chart in the snapshot below, we have a “stock price reaction” tracker in our Earnings Explorer that helps users see how companies are reacting to reports over time. The reading shows the median one-day share price change for all companies that have reported earnings over the prior three months. At the end of Q1, this reading had dipped to five-year lows, meaning stocks were reacting more poorly to earnings than at any time since at least 2016. Over the last few months, this reading has been ticking higher and higher although it’s still negative. As more reports from late March and April roll off the 3-month tracker, however, the reading should tick back into positive territory soon provided the current trend of more positive reactions continues.
Our Earnings Explorer also allows users to dive into how individual stocks have reacted to earnings reports over time. We mentioned above that stocks that have reported over the last month have generally been reacting positively to the news. Below we show the stocks that have seen the biggest one-day gains in reaction to earnings over the last month. Furniture retailer Conn’s (CONN) had the best one-day move in reaction to earnings when it gained 27% back on June 3rd. Titan Machinery (TITN) and Cloudera (CLDR) are two more stocks that gained more than 20% on their earnings reaction days within the last month. Other names on the list below include DocuSign (DOCU), Dick’s (DKS), RH, Plug Power (PLUG), and Zscaler (ZS). All of the stocks in the table below gained at least 10% on their recent earnings reaction days.
Even though the average stock has posted a nice gain in reaction to earnings over the last month, there have still been a few losers. Below are the thirteen stocks that fell at least 10% in reaction to recent earnings reports. The king of the meme stocks — GameStop (GME) — actually tops the list with a 27% decline experienced back on June 10th after reporting after the close on June 9th. Click here to see how to gain access to our Earnings Explorer tool and the rest of our research package.