What to Watch Before Earnings: EPS, Revenue, Guidance and the Implied Move

Key takeaways

• Before a company reports, find the consensus estimates for earnings per share (EPS) and revenue. The market reacts to results compared with those expectations, not to the raw numbers.
• Guidance, the company's own outlook for future quarters, often moves the stock more than the quarter just reported.
• The options market prices in an "implied move." A quick estimate is the cost of the at-the-money straddle that expires just after the report.
• Know the exact date and whether the report comes before the open or after the close. That decides when the stock can gap.
• Judge the reaction over more than the first few minutes. Moves after hours and in the first half hour of the next session can reverse.

Earnings reports are some of the biggest scheduled events for any stock. Four times a year, a public company tells investors how much it sold, how much it earned and, often, what it expects next. Prices can jump or drop sharply within seconds of the release. Knowing what to check beforehand helps you understand the move, whether you own the stock, plan to trade it, or just follow it.

1. The date and the time of day

Companies usually announce their report date in advance, on the investor relations section of their website and through a press release. Most US companies report either before the market opens or after the market closes, rather than during regular trading hours.

• Before the open: the stock reacts in pre-market trading and at the opening bell.
• After the close: the stock reacts in after-hours trading that evening and again at the next open.

Most companies also hold a conference call with analysts shortly after the release, and comments made on the call can move the stock a second time. The release itself is commonly filed with the SEC on a Form 8-K, and the full quarterly report follows on Form 10-Q. Always confirm the date with the company directly, because third-party calendars sometimes show estimated dates that later change.

2. Expected EPS and revenue

Earnings per share (EPS) is a company's profit divided by its shares outstanding. Analysts who cover the company publish estimates, and the average of those estimates is called the consensus. Financial websites show consensus figures for both EPS and revenue.

What matters for the stock is the gap between the result and the consensus, often called the surprise. Here is a hypothetical example:

Measure (hypothetical)	Consensus estimate	Reported	Result
EPS	$1.20	$1.32	Beat by $0.12 (10%)
Revenue	$5.00 billion	$4.96 billion	Missed by 0.8%
Next-quarter revenue guidance	$5.30 billion	$5.10 billion to $5.20 billion	Below expectations

A beat on EPS can still lead to a falling stock if revenue misses or guidance disappoints, as in the made-up example above. Watch for adjusted versus reported figures, too. Many companies highlight "adjusted" or "non-GAAP" EPS, which leaves out some costs. Make sure you compare the reported number with an estimate built on the same basis.

3. Guidance and the outlook

Guidance is a company's own forecast for coming quarters or the full fiscal year, usually for revenue, EPS or margins. Markets look ahead, so a change in guidance is often the single biggest driver of the reaction.

Key things to compare:

• Did the company raise, keep or cut its previous guidance?
• How does the new range compare with analysts' estimates for the same period?
• Did management comment on demand, pricing, costs or spending plans on the call?

Not every company gives guidance. When it does not, the tone of management's comments and key business numbers, such as subscriber counts, same-store sales or orders, carry more weight.

4. The implied move from options

Options prices reveal how big a move the market expects. Before earnings, implied volatility usually rises because uncertainty is high. A common shortcut for the expected move is the price of the at-the-money straddle (one call plus one put at the strike nearest the stock price) in the first expiration after the report.

Hypothetical example: a stock trades at $80, and the at-the-money straddle for the expiration right after earnings costs $6.00. The implied move is about $6.00 / $80 = 7.5%, or a range of roughly $74 to $86. Some traders use a slightly smaller figure, about 85% of the straddle price, as a closer estimate.

Two practical points:

• The implied move is an estimate, not a promise. Stocks often move less than implied and sometimes much more.
• After the report, implied volatility usually falls quickly. This "volatility crush" can make options lose value even when the stock moves in the direction the buyer expected.

For more on how implied volatility affects options trades, see Jade Lizard Options Strategy: How It Works, With a Worked Example.

5. What is already priced in

Before the report, look at how the stock has traded in the past few weeks. A stock that has rallied hard into earnings may need a strong beat just to hold its gains. One that has sold off may rise on results that are merely "less bad." Also check how the stock reacted after its last several reports. Some companies have a history of large moves, others of small ones.

How to read the reaction

The first price you see after the release is often not the final verdict. A sensible way to read the reaction:

1. Compare the move with the implied move. A 3% move on a 7.5% implied move is a mild reaction. A 15% move is a big surprise.
2. Check volume. After-hours and pre-market trading are thin, so prices can swing on small orders. The move on regular-session volume is more reliable.
3. Listen to the call or read the summary. Stocks often reverse during the call when management adds context.
4. Watch the first trading session. Does the stock hold its gap, fill it, or extend it? A gap up that fades all day tells a different story from one that closes at the high.
5. Look at the next few days. Analysts revise estimates and price targets after a report, which can keep a move going.

Reports often create large gaps at the open. For how traders screen those gaps, see Pre-Market Gappers Explained.

A pre-earnings checklist

Check	Where to find it
Report date and before-open or after-close timing	Company investor relations page or press release
Consensus EPS and revenue	Financial data websites and brokerage research
Previous guidance	Last earnings release or call
Implied move	Options chain: at-the-money straddle for the first expiration after the report
Recent price trend and past reactions	Price chart, prior earnings dates
Position size if holding through the report	Your own risk plan

Common questions

Why did a stock fall after beating estimates?

Usually because guidance was weak, revenue or margins disappointed, or expectations were higher than the published consensus. The stock may also have risen a lot before the report.

Is holding a stock through earnings risky?

It adds gap risk. A stop order cannot protect against a price that opens far beyond it, because stop orders become market orders once triggered. Many traders cut position size before a report for that reason.

What is a whisper number?

An informal estimate, often higher than the published consensus, of what traders really expect. It is not official and can be hard to verify.

Sources

• Investopedia: Earnings Per Share (EPS)
• Investopedia: Implied Volatility and Options Pricing
• Investor.gov (SEC): Form 8-K
• Investor.gov (SEC): Form 10-Q
• Investor.gov (SEC): Types of Orders

This article is for general information only and is not financial advice. All figures in the examples are hypothetical. Trading around earnings can lead to large, fast losses, and options involve significant risk and are not suitable for all investors.