Connect with us

Business

Stocks plunder when companies massage their earnings – Eventually

Published

on

companies change earnings report

It’s no surprise that companies change their earnings report.

They call them “adjusted earnings.”

For all companies in the S&P 500 they are required to give GAAP (generally accepted accounting principals) figures in their quarterly and yearly reports but the “adjusted earnings” come in in what are called pro-forma results.

When there are large discrepancies in the the GAAP and Pro-forma results, investors see red flags and typically…eventually… the stock price catches up.
[buffet_recommended]

“We believe that the best EPS measure for valuation purposes sits somewhere between pro forma and GAAP EPS, where in between varies by company, industry and sector,” wrote Deutsche Bank’s David Bianco in December 12 note to clients. “Although pro forma EPS can overstate true EPS, GAAP EPS can understate true EPS.”

But are investors really overlooking GAAP? New research from quantitative analysts at Evercore ISI suggest this may indeed be the case.

The analysts looked at the stock-market performance of companies with unusually large differences between GAAP and pro forma results. A big portion of these lately have come from the hard-hit energy and basic-material sectors, but also draws heavily from other areas, such as health-care and tech.

Read More

 


Click to comment

Leave a Reply

Your email address will not be published.

Continue Reading

Subscribe To Our Newsletter:


Copyright © 2020 The Capitalist. his copyrighted material may not be republished without express permission. The information presented here is for general educational purposes only. MATERIAL CONNECTION DISCLOSURE: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this page and may receive commissions from purchases you make on subsequent web sites. You should not rely solely on information contained in this email to evaluate the product or service being endorsed. Always exercise due diligence before purchasing any product or service. This website contains advertisements.

[email]
[email]