Great Expectations: Earnings Estimates and Their Impact on Stock Prices
How often have you seen a stock’s price fall after the company announced increased earnings?
Or, just recently, why did the stock of investment banking firm Lehman Brothers soar after it announced that its fiscal first-quarter earnings fell 57%?
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In these instances, actual earnings did not turn out as the market expected.
In fact, expectations play a key role in determining if a stock’s price “gains” or “loses” when actual earnings are reported.
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