ScreenWhen companies report earnings significantly higher than analyst's earnings estimates the result is known as an 'earning's suprise'. While earnings surprises often create spikes in the share price on the day of the announcement, they have also been observed to trigger longer term increases in the share price. This effect is known as the "Post Earnings Announcement Drift" and can last for several weeks or even months after the announcement date. The effect is generally attributed to the fact that analysts are slow to revise their forecasts and the market does not fully react to the information about future growth conveyed by the earnings surprises. The idea behind the strategy is to buy stocks that report earnings surprises and hold them over this time period. Positive surprises often happen at the beginning of a turnaround, or a new growth cycle where sales start to accelerate beyond the historical rates, “surprising” the analyst community. You can read more here. more »
