Earnings season occurs four times a year with the majority of companies reporting their earnings quarterly. When companies report substantial growth or announce an increase in future expectations of growth, it creates an opportunity for price advancement. It’s easier to take full advantage of earnings announcements if you understand the data being presented.


When companies report earnings to the SEC, they must comply with GAAP (Generally Accepted Accounting Principles) rules for reporting. These rules require full disclosure for summarizing transactions, income and expenses. However, they may not be the best way to evaluate the growth of a company’s operations or compare them to other companies. This is why it’s important to consider GAAP and non-GAAP figures. Our team of over 50 highly trained research analysts review, authenticate and check all reported earnings to ensure the numbers are accurate. Non-recurring transactions are adjusted and extraordinary items are removed to provide a more precise picture of core operating earnings. Institutional investors use non-GAAP earnings in their models, projections, and evaluations. MarketSmith members are serious about their investments, which is why we provide non-GAAP figures for all the stocks in our database.


Recently, a customer shared this story with us, which is the perfect example of why using non-GAAP earnings is important. He was considering buying Verizon Communications (VZ) last quarter just after they released earnings. Using the GAAP data from the earnings release (the data displayed on most free research sites) resulted in a P/E of 125. However, after our research team removed the extraordinary charges (that had nothing to do with actual operations), the P/E we displayed adjusted down to 14. At first, the customer was concerned with the discrepancy in the data, but was later appreciative of the fact that non-GAAP data is the institutional quality data that determines whether your decision is based on verified, reliable information, or information that has been mass distributed and unattended to. This little extra step allowed this gentleman to recognize an opportunity and capture about 20% in gains, whereas those relying on basic/free data would have missed it.


Best Returns,


Your MarketSmith Education Team