Earnings Time

Corporate executives are great salesmen. Many have climbed the ladder through actually sales talent, or by selling themselves. One of their preferred pitches once they reach the top is the case for their stock: it's always undervalued by the market.

Quarterly earnings releases are important market signals since a company has to earn real money (either now or in the future) to be worth something. But earnings reports can also be rife with overly optimistic management speak and fuzzy accounting assumptions. Management will border on dishonesty to prove their case. That's why, with no significant research budget, Faro relies on basic economics, common sense, and financials as the foundation for investment decisions.

So when analyzing the earnings releases, look for companies with potential economic signals (Are people eating out less? Do moviegoers habits change in a bad economy? Are people paying their credit card bills?) True, these are lagging economic indicators, but econ is not known for its predictive value. Since learning is cumulative, even if management is full of it, you'll be able to take away useful bits of info. And, you'll be able to hang this on your problem solving matrix framework (PSMF). I just made that up.

As we're in the middle of "earnings season," each day of this week there's a call which is probably worth paying attention to.

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Monday

Orbitz (online travel). How bad are leisure and business travel bookings?

Tuesday

Cowen (boutique investment bank). Why is this company trading at close to cash? 116M net cash vs. 122M market cap.

Wednesday

Papa John's (pizzas). How are commodity costs affecting margins?

Thursday

Perini (general contracting and construction management). What's changed in the last 12 months?

Friday

Beazer (home builder). What would its adjusted balance sheet really look like?

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Enjoy.