Putting The Earnings Beats In Perspective
If you only follow the surface level headlines in the economy and in the stock market, you would probably think things are roaring in the economy. Reading headlines like Target’s profit rises 53.7% would probably make you think that things are just wonderful in the business world and we’re recovery like crazy!
While earnings beats are definitely a positive since they do indicate earnings growth, we need to remember that these are typically year-over-year comparisons and over the last few quarters, we’ve been comparing earnings with earnings from late 2008 and early 2009. These comparisons are for the most part, very easy “beats”. The more important earning announcements will come in late 2010 and early 2011 as we compare earnings to recent quarters. These future announcements will tell us much more about the strength of the recovery and maybe more importantly, the sustainability of the recovery.
So, as you follow your favorite stock or your favorite company, earnings growth is a good thing even when compared to the depressed quarters of a year ago, but don’t go bananas and keep these reports in perspective. The second half of this year and early 2011 will be the much more indicative results, whether that will be bullish or bearish remains to be seen.