Understanding Earnings and Whispers

A Look at the Factors Affecting Stock Direction Surrounding a Quarterly Earnings Release

What makes earnings so special? Earnings are important to investors because they give an indication of the company's expected future dividends and its potential for growth and capital appreciation. Does this mean that low or negative earnings indicate a 'bad' stock? Not necessarily, as many young and growing companies will see negative earnings as they attempt to grow quickly to capture a new market.

At one point, earnings data was limited to a few numbers - the one the company expected and then the actual earnings released. But now, with every quarter, investor's are bombarded with a mass amount of quarterly earnings information - different numbers, different sources, and different expectations. The majority of this information is useless to the average investor. Figuring out the difference between the 'meaningful' and the 'meaningless' can be difficult but is an important aspect to successful trading.

WhisperNumber.com provides an alternative source to the 'meaningless' earnings information found on the majority of financial websites and within the financial media. The 'other' data relies on analysts to provide an earnings consensus estimate. (Suffice it to say that analysts some how maintain power and gain the most media coverage for consistently being wrong and reactionary. In other words, be wary of this data.) Our data does not come from analysts (nor does it come from the great unknown.) For over six years we have collected quarterly earnings information from a vast database of registered individual investors - we call the expectations data we collect whisper numbers. The data is sourced, compiled, and provided for free on the WhisperNumber.com website. The data (and database of participating individual investors) has been reviewed by numerous outside parties including CFO Magazine, Barron's, and leading marketing firm Roper ASW. Aside from being the only 'sourced' and consistent earnings data available to all investor's, it's the only data that has proven itself accurate and reliable.

Earnings Accuracy
So we know there is questionable data out there. But how are the earnings expectations found on WhisperNumber.com different?

Our studies have found that the best earnings expectations data comes from the masses (individual investors), not analysts. After studying the earnings data (whisper numbers) we've collected for the past six years (this article was published in 2004), we've been able to understand some basic patterns or predictive principles that have developed and take place around earnings releases.

One of the primary predictive principles is as follows:
Stock prices have a greater tendency to increase (or decrease) based upon whether or not the actual earnings of a company beat (or miss) the whisper number expectations provided by WhisperNumber.com.

Take a look at the following recent examples of this principle - take special note of the companies that beat or met the analysts estimates (stock should rise, right?), but missed the whisper (stock actually fell):

  Company Symbol Report
Risk Rating
Estimate Whisper Actual 1-Day
1 NOVELL, INC. NOVL 05/24/2004 High 0.03 0.04 0.03 -0.77 -0.99
2 MANDALAY RESORT GROUP MBG 06/03/2004 Neutral 1.11 1.12 1.30 5.65 --
3 HEINZ (H.J.) CO. HNZ 05/25/2004 Neutral 0.58 0.58 0.58 -0.35 -0.44
4 AUTOZONE, INC. AZO 05/27/2004 Neutral 1.55 1.53 1.68 2.06 3.13
5 MICHAELS STORES, INC. MIK 05/26/2004 Low 0.37 0.36 0.42 4.62 5.62
6 DOLLAR GENERAL CORP. DG 05/27/2004 High 0.20 0.21 0.20 -0.16 0.49
7 DOLLAR TREE STORES INC. DLTR 05/26/2004 High 0.29 0.30 0.31 2.21 2.88
8 TECH DATA CORP. TECD 05/26/2004 Neutral 0.49 0.49 0.59 3.99 4.93
9 DISNEY (WALT) CO. DIS 05/12/2004 Low 0.21 0.20 0.26 0.30 0.00
10 SEMTECH CORP. SMTC 05/25/2004 High 0.18 0.19 0.19 0.19 0.67
11 ALBERTSON'S INC. ABS 06/02/2004 Neutral 0.11 0.11 0.15 0.07 0.79
12 TENET HEALTHCARE CORP. THC 05/04/2004 Low 0.03 0.02 0.05 0.48 0.81
13 SYMBOL TECHNOLOGIES, INC. SBL 05/10/2004 Low 0.08 0.07 0.08 1.83 1.42
14 BIG LOTS, INC. BLI 05/19/2004 High 0.04 0.06 0.06 0.23 0.77
15 BROCADE COMM. SYS. BRCD 05/19/2004 Low 0.03 0.02 0.03 0.35 0.85
16 DYCOM INDUSTRIES, INC. DY 05/24/2004 High 0.23 0.24 0.26 1.88 1.61
17 PIEDMONT NATURAL GAS PNY 06/04/2004 Neutral 1.01 1.02 1.08 0.71 --
18 ANALOG DEVICES, INC. ADI 05/13/2004 Neutral 0.35 0.36 0.39 0.76 1.63
19 TARGET CORP. TGT 05/13/2004 High 0.47 0.49 0.48 -0.17 -0.14
20 TIFFANY CO. TIF 05/13/2004 High 0.27 0.29 0.27 -0.59 -0.18
21 STAPLES INC SPLS 05/18/2004 High 0.22 0.25 0.25 0.35 0.89
22 AMERICAN EAGLE OUTFITTERS AEOS 05/13/2004 Low 0.33 0.29 0.34 0.02 -0.04
23 UNIVISION COMM. INC. UVN 05/06/2004 Neutral 0.08 0.08 0.09 0.43 -0.66
24 TOYOTA MOTOR CORP TM 05/11/2004 Neutral 1.35 1.37 2.01 1.49 0.63
25 BEA SYSTEMS, INC. BEAS 05/13/2004 High 0.08 0.09 0.08 -2.43 -2.47

These are compelling examples as they show the stock prices of the companies listed reacting to the whisper number, not the analysts consensus estimate. The reason? Whisper number expectations are on average a more timely and representative sample.

Historical Data Comparatives
Another important aspect to help understand a company's earnings potential would be a look at historical earnings comparatives. WhisperNumber provides you with a company Earnings Profile that highlights a company's historical performance against the whisper. You can gain access to data such as the Earnings Performance History (how often the company beat or missed the whisper, plus average stock movement).

Now, of course, no method or service will be 100% accurate or complete. The primary purpose of this article is to provide you with additional knowledge of the data points WhisperNumber offers, and a better understanding of the complimentary and very useful information available on the free WhisperNumber website.

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About WhisperNumber Whisper Numbers Product Educate Help
Since our start in 1998, we have collected earnings expectations (whisper numbers) from traders and investors that register with our site. Whether you call it 'wisdom of crowds', 'social media analytics', or 'crowd sourcing', this methodology has proven itself over the past twenty years as a more useful and valued earnings indicator. And traders know estimates don't move markets, expectations move markets.

The firm was founded in 1998 by John Scherr, with the belief that the aggregated data collected from individual investors & traders would prove more timely, accurate, and useful than the analysts consensus estimates. The WhisperNumber expectation is regularly referenced in notable financial media sources such as CNBC, Fox Business, Forbes, Barron's, The Wall Street Journal, CNN Money, The Street, and Bloomberg, amongst others.











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