TL;DR: Reading a company's results mainly means looking at the difference from what the market expected, and at expectations for the coming period. That is why a share can fall after good results. Prices can swing sharply around the release.
Step-by-step guide
- Find out on the company’s investor relations page when the next results are due.
- Read the press release or presentation that comes with the results: earnings per share, revenue and outlook.
- Compare the results with the same period last year and with analysts’ expectations.
- Read what management says about the coming period (the outlook or ‘guidance’).
- Look in the annual report for the details: margins, debt, cash flow.
- Watch the price reaction and ask yourself whether it fits the results.
- If you trade around results, decide in advance how much you are willing to lose at most.
- Allow for fast price jumps: your stop-loss may be executed at a worse price than you set.
What results does a company publish?
Listed companies in Europe publish an annual report with audited accounts. Usually half-year results follow too. Many companies also publish quarterly results or a short trading update. This is often voluntary, so it differs by company. The dates are on the financial calendar on the company’s website. For US companies, quarterly results are the norm.
The main figures
- Revenue: what the company sold in the period.
- Earnings per share: net profit divided by the number of shares.
- Margins: how much is left after costs.
- Cash flow: how much money really came in and went out.
- Outlook: what management expects for the coming period.
Worked example: earnings per share
Suppose company Beta makes €100 million profit and has 50 million shares in issue. Earnings per share are then 100 / 50 = €2.00. Analysts expected €2.00. Beta reports €2.10, which is 5% above expectations ((2.10 - 2.00) / 2.00 = 5%). This is a made-up example.
Why the price can fall after good results
A share’s price already contains the market’s expectations. So what matters most is the difference from that expectation, not the figure itself. Three situations:
- Above expectations: the price often rises, but not always.
- In line with expectations: the price often barely reacts, because there is no new information.
- Below expectations: the price often falls, but not always.
The outlook often counts for more
A company can meet expectations for the past quarter and still fall because it lowers its outlook. Suppose Beta is at €50. It reports €2.10 per share (above expectations), but says revenue will be lower than thought in the coming period. The price falls 5% to €47.50. Someone holding 100 shares then loses 100 × €2.50 = €250, despite the good results.
A high price beforehand
If a share has already risen sharply before the results, the market expects a lot. Then even a good result can disappoint. The other way round, a bad result can turn out better than feared if expectations were low. This is visible afterwards, but hard to predict beforehand.
Risks around the release of results
- Large price jumps: at the open the price can show a big gap from the previous day’s close.
- A stop-loss helps only so much: in a gap, a stop-loss is executed at the next available price, not at your stop level.
- Wider spreads: the difference between buy and sell price can be larger.
- Quick reversals: a first move can disappear again during the day.
If you do not want to deal with this, you can choose not to open a position around results or to make the position smaller. Read more about balancing risk and reward and use the position size calculator to decide in advance how much you are willing to lose at most.
Reading the annual report
The figures in the press release are a summary. The annual report contains the details: the income statement, the balance sheet, the cash flow statement and the notes. Look out for:
- Is revenue changing because of growth, acquisitions or a one-off item?
- Do margins differ from previous years?
- Are debt or inventories rising faster than revenue?
- Which risks does management itself mention?
You will find more background on reading company figures in Fundamental Analysis: the Basics. You can find more about stocks on our page for that category.
Investing and trading involve risk: you can lose all or part of your money. Past performance is no guarantee of future results. This tutorial is information, not investment advice.
Work it out yourself
Test yourself
Practice questions to check your understanding, not advice.
A company makes €60 million in profit and has 30 million shares outstanding. What is the earnings per share?
- €90
- €0.50
- €2.00
- €30
Show answer
Answer:C. €2.00
Earnings per share = net profit / number of shares = 60 / 30 = €2.00.
Why can a stock fall after results that beat expectations?
- Because, for example, the outlook is lowered or expectations were very high
- Because earnings per share do not count then
- Because a price never reacts to results
- Because the market always ignores results
Show answer
Answer:A. Because, for example, the outlook is lowered or expectations were very high
The price reacts to the difference from expectations, and the outlook also counts. Good results with a lowered outlook can therefore lead to a fall.
You hold 200 shares at €40. After the results, the price drops 5%. How much do you lose?
- €40
- €200
- €400
- €800
Show answer
Answer:C. €400
5% of €40 is €2 per share. With 200 shares, the loss is 200 × €2 = €400.
After the results, the stock opens far below your stop-loss level (a gap). At what price is the stop-loss executed?
- At the next available price, which can be worse than your stop level
- At the previous day's closing price
- The stop-loss is never executed
- Exactly at your stop level
Show answer
Answer:A. At the next available price, which can be worse than your stop level
With a gap, execution follows the next available price. Your loss can therefore be larger than planned.
Which figures do listed companies in Europe always publish, and which are often voluntary?
- Only quarterly figures
- Always quarterly figures, an annual report is voluntary
- Always an annual report and usually half-year figures; quarterly figures are often voluntary
- Only an annual report, never an interim update
Show answer
Answer:C. Always an annual report and usually half-year figures; quarterly figures are often voluntary
In Europe, an annual report and usually half-year figures are published. Many companies publish quarterly figures or a trading update voluntarily.
Frequently asked questions
- Should I sell a share before the results or hold it?
- That depends on your plan and your risk. Results can move the price quickly and sharply, in either direction. Someone trading short term who does not want to risk a large loss may choose to make the position smaller, or not to open one just before the results. Someone investing for the long term usually looks at the bigger picture. Decide in advance what you will do and why.
- Can I predict whether a company will beat or miss expectations?
- Not with certainty. You can look at earlier results, at what competitors report and at what the company itself has said. But the market knows this too, so expectations are often already in the price. It remains a gamble.
- Why does a share sometimes fall after good results?
- The price reacts to the difference from what the market expected, not to the figure itself. Expectations for the coming period count too. If the results are good but the company lowers its outlook, or if expectations were very high, the price can fall.
- What results do European companies publish?
- Listed companies in Europe publish an annual report and usually half-year results. Many companies publish quarterly results or a short trading update voluntarily, but this differs by company. Check the company's investor relations page for when results are due.