Earnings, 10/19/2023

One pre-earnings trade and one post-earnings trade to end the week.

When A Stock Tanks Despite Good Earnings

Recall we’ve been looking at seven different metrics for earnings trades:

• LikeFolio’s earnings score based on social data. The higher the number, the more bullish, the lower (more negative) the number, the more bearish.

• Portfolio Armor’s gauge of options market sentiment.

• Chartmill’s Setup rating. On a scale of 1-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Zacks Earnings ESP (Expected Surprise Prediction). This is a ratio of the most accurate analyst’s earnings estimate versus the consensus estimate.

• The Piotroski F-Score. A measure of financial strength on a scale from 0-9, with 9 being best.

• Recent insider transactions.

• RSI (Relative Strength Index). A technical measure of whether a stock is overbought or oversold. We’re looking for RSI levels below 70 for bullish trades and above 30 for bearish ones.

Here’s how those metrics looked on a stock we bet on earlier this week:

Bullish Stock #1

1. Social data: +83.

2. PA Options sentiment: Bullish.

3. Setup rating: 3

4. Zacks ESP: -0.13%

5. F-Score: 7

6. Recent insider transaction(s): open market sales in July and August, but larger open market buys in March.

7. RSI: 24 (oversold)

That company beat on both top and bottom lines when it reported earnings, but the stock tanked nearly 10% the next day, after the company guided that the current Mideast war would negatively impact its Q4 numbers. Our bet below is that the war ends before the company releases its Q2 earnings next year, and the stock starts trading again at a multiple that reflects the absence of that headwind. That’s our post-earnings trade. Our pre-earnings trade is below.

Bullish Stock #2

1. Social data: +23.

2. PA Options sentiment: Moderately Bullish.

3. Setup rating: 8

4. Zacks ESP: 0% (neutral)

5. F-Score: 8

6. Recent insider transaction(s): Net open market buys this year.

7. RSI: 55

Details below.

Bullish Trade #1