What to Look Out for at Earnings Season

Thomas Habith
Apr 26
3 min read

Earnings season is one of the most anticipated times on the investing calendar. It’s when publicly traded companies open their books and share how they’ve performed over the past quarter. For investors, these updates can provide valuable insights—not just into a single company’s performance, but into industry trends, consumer behavior, and broader economic signals.

But with dozens of reports coming in each day, how can you cut through the noise and focus on what truly matters? In this article, we’ll explore what to watch for during earnings season—and how to use the information to make smarter investing decisions.

Tips for your next Earnings Season :

1. Earnings Per Share (EPS) vs. Expectations

EPS is the most headline-grabbing number during earnings season. It shows how much profit a company earned per share of its stock. But what matters most isn’t just the number itself—it's how it compares to analyst expectations.

Beat: If a company reports an EPS higher than expected, the stock may rise.
Miss: If earnings fall short, the stock may fall—even if the actual results were solid.
In-line: Sometimes the results are exactly as expected, but market reaction still depends on forward guidance and the broader context.

Pro tip: Don’t look at EPS in isolation. Dig deeper into how the company achieved (or failed to achieve) those numbers. Did they cut costs? Was revenue strong? Are margins shrinking?

2. Revenue Growth and Trends

Revenue, or top-line growth, tells you how much money the company brought in before expenses. This is critical because a company can beat EPS by slashing costs, but if revenue is stagnant or declining, it may signal trouble ahead.

Ask:

Is revenue growing year-over-year and quarter-over-quarter?
Are there seasonal effects that explain fluctuations?
Is growth organic (core business) or due to acquisitions?

Look for consistency. Strong, steady growth usually signals that the business model is healthy.

3. Forward Guidance

Forward guidance is where the real drama often lies. A company might have a great quarter, but if it lowers its forecast for the next one, the stock might drop.

Pay attention to:

Projected revenue and EPS for upcoming quarters.
CEO/CFO commentary about demand, inflation, costs, or macro trends.
Any changes to full-year outlooks.

A downgrade in outlook can sometimes be more influential than the past quarter's results.

4. Margins and Profitability

Profit margins tell you how efficiently a company converts revenue into profit.

Watch for changes in:

Gross margin: revenue minus cost of goods sold.
Operating margin: profit from core business operations.
Net margin: bottom-line profit after all costs and taxes.

Falling margins could mean rising input costs, pricing pressure, or inefficiencies. In contrast, rising margins often indicate growing pricing power or operational improvements.

5. Free Cash Flow and CapEx

Earnings are often "massaged" using accounting rules, but free cash flow (FCF) shows how much actual cash the company generated. That’s what ultimately matters for paying dividends, buying back stock, or reinvesting in the business.

Also check:

Capital expenditures (CapEx): is the company investing in future growth?
Shareholder returns: any increases in dividends or buybacks?

6. Management Commentary and Tone

Read or listen to the earnings call. Beyond the numbers, the tone and messaging of executives can reveal:

Confidence (or lack thereof) in the business.
Strategic direction.
Hidden concerns about costs, demand, or competition.

Some red flags:

Vague explanations for missed targets.
Overuse of buzzwords without clear action plans.
Defensive responses to analyst questions.

7. How the Stock Reacts

Sometimes, strong earnings still lead to a stock drop. Why? Because markets are forward-looking.

Watch:

How the stock reacts immediately after earnings.
Whether large investors (institutions) are buying or selling.
How the news compares to broader sector performance.

If a stock falls after good earnings, it may have been priced for perfection—or something in the report raised concern.

Final Thoughts

Earnings season can feel overwhelming, but it’s also a goldmine of information. The key is to focus on more than just the headlines. By digging into revenue trends, margins, cash flow, and forward guidance—and by listening closely to management’s tone—you can uncover what really matters.

Remember: it’s not about reacting to every earnings report, but about refining your understanding of a company’s long-term potential. Use earnings season as a checkpoint—not a trigger for panic or euphoria.