An earnings estimate is a prediction of a company's financial performance, specifically its earnings per share (EPS) for a given period of time. Earnings estimates are typically made by analysts who follow the company and its industry and are used by investors and traders to make informed decisions about buying or selling a company's stock.
Earnings estimates are usually made for a specific period of time, such as a quarter or a fiscal year. For example, a company's earnings estimate for the fourth quarter of a fiscal year might be $1.00 per share. This means that analysts expect the company to earn $1.00 per share during the last three months of the fiscal year.
To arrive at an earnings estimate, analysts typically use a variety of financial metrics and data, including revenue, gross margin, operating expenses, and taxes. They may also take into account external factors such as the overall economic environment and the company's industry trends. Once the analysts have gathered this information, they will use it to make an educated prediction about the company's future earnings.
Earnings estimates are not always accurate and can change over time. For example, a company's earnings estimate for the fourth quarter might be $1.00 per share, but if the company's revenue falls short of expectations, the estimate might be revised down to $0.90 per share. Similarly, if the company's revenue exceeds expectations, the estimate might be revised upward to $1.10 per share.
Earnings estimates are also subject to changes due to unforeseen events or market changes. For instance, a company that relies heavily on the oil industry might have to adjust its earnings estimate if there is a sudden change in the price of oil.
When a company releases its actual earnings, they are compared to the earnings estimates. If the company's earnings are higher than estimates, it is said to have beaten earnings estimates, and the stock price of the company may rise. On the other hand, if the company's earnings are lower than expected, it is said to have missed earnings estimates, and the stock price may fall.
An example of this can be seen in the case of Apple, Inc. Apple's earnings estimate for fiscal year 2020 was $ 11.75 per share, and the company announced actual earnings of $12.68 per share, beating the estimate by 8%.As a result, the stock price of Apple Inc. went up by 2.5%.
In conclusion, earnings estimates are predictions of a company's financial performance, specifically its earnings per share (EPS) for a given period of time. They are made by analysts and are used by investors and traders to make informed decisions about buying or selling a company's stock. Earnings estimates are not always accurate and can change due to unforeseen events or market changes. The actual earnings of a company are compared to the earnings estimates, and if a company beats or misses its earnings estimates, it can have a significant impact on the stock price of the company.
