Most basic use of whisper number data:
How To Best Utilize Whisper Numbers
- Primary: As an accurate predictor of stock movement
- Secondary: As an accurate predictor of actual EPS
A number of investors have asked how to best utilize our data. First, in order to make the best trades investors need to be aware of all factors affecting market moves. And that means understanding investor expectations (whispers). We'll restate something from a recent report: 'What we do know for sure is that company stock prices continue to react to beating or missing individual investor earnings expectations (whisper numbers) on a more consistent basis than analysts estimates.'
More often than not when a company misses the whisper number the stock is basically 'punished' and will see a decline in price over a one to thirty day period after earnings are released. And on average when a company beats the whisper the stock is rewarded and will see gains over a one to thirty day period after earnings are released. It is a simple process that should not be over thought.
Let's take a look at Yahoo! (YHOO) from Q2 '05. They reported on July 19th. The analysts estimate was 13 cents and the whisper was 15 cents. They reported 13 cents (after market close) obviously matching the analysts but missing the whisper. If you anticipated them missing earnings you could have shorted the stock somewhere between 36 and 38. Within five days it was down to 34 (an 8% short gain). Let's say you didn't anticipate the miss and waited for the report. You entered a short position the day after earnings somewhere between 32.75 and 33.75. Within thirty trading days you exit the position at 32 for a 3.75% short gain. Miss the whisper stock gets punished.
If you don't like short positions, let's take a look at Apple Computer (AAPL) from Q2 '05. They reported on July 13th. Analysts expected 31 cents, investors had a whisper of 33 cents, and they beat both outlooks reporting 37 cents. If you expected them to beat the high whisper (we didn't) you entered a long position around 38 prior to the release. Within five days the stock was up to 43 and you were seeing 13% gains. If you waited until after the report you entered the market around 41. Within thirty trading days you're at 45 seeing gains of 9.7%. Beat the whisper stock gets rewarded.
In fact, companies that exceed both the whisper number (from WhisperNumber.com) and the analysts estimate see a 2.5 times greater positive post earnings price move than companies that only exceed the analysts estimate but miss the whisper.
Does it always work this way? Absolutely not. But historically the data has proven itself more accurate in predicting stock movement than analysts estimates (which shows no definitive cause and effect). Our data (since 1997) has shown an predictive accuracy rate between 70-82%.
WhisperNumber.com has put together those companies most likely to see price volatility according to whether or not they beat or miss the whisper. These companies have a high probability of positive price movement following the earnings report if they beat the whisper number, and negative price movement if they miss the whisper number. To learn more about the Whisper Reactors service click here