Each quarter, markets face a reality check as companies release their financial results. Interestingly, while these results often reveal positive earnings surprises, stock performance generally remains unaffected. As shown in the table below, most sectors reported positive earnings surprises in Q3; however, only one sector saw positive stock performance. The takeaway is that positive earnings surprises alone often do not necessarily lead to stock gains (see annex chart). Investors need to dig deeper to uncover value in earnings surprises, where context is crucial. According to other metrics tracked by Investment Analysts GmbH, companies that perform well during earnings season typically fall into one of three categories: confirming structural growth trends, reversing a negative profit trend, or demonstrating new potential within their business segment.
Q3 US earnings season till 25 October included (321 US stocks)
Source: Investment Analytics GmbH
Clear examples of positive performers during the Q3 earnings season include Stride, Inc. and Herc Holdings, although the latter reported a negative earnings surprise. Both companies confirmed a structural growth trend. Notably, Tesla demonstrated a positive reversal in its earnings trend, which triggered a rally in its stock. Complementary data on the stock is provided below, with additional narrative and key metrics available through the US Stocks Insights App.
Herc expects record earnings in Q4 despite uncertainty in the sector
Source: Investment Analytics GmbH
Stride reports record enrollments 18% y/y
Source: Investment Analytics GmbH
Tesla stock surges amid optimistic delivery forecast
Source: Investment Analytics GmbH
Annex: No direct relations between performance and earnings surprise
Earnings surprise vs. performance week of earnings release - Q3 2024 season
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