Earnings season can make investing tricky. Many investors try to time trades based on earnings announcements, but usually find such trading is inconsistent and risky. It is often better to take a look at how the market has reacted to a company’s results a few weeks after the initial announcement.

Spirit AeroSystems Holdings Inc (SPR) released its earnings announcement on 11/05. The company reported a change in quarter-over-quarter sales of 2.59% and posted an EPS (trailing twelve months) of 1.15.

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By now the market has had time to settle in and look closely at the numbers. A stock’s performance in the few weeks following an announcement, compared to other stocks in its industry, the industry as a whole, and market as a whole, really tells you how investors and analysts felt about the announcement.

Compared to the rest of the “Aerospace/Defense Products & Services” industry

Since the SPR announcement (about 30 days ago), the stock has posted a 17.44% gain. Over that same period, the stock’s industry, Aerospace/Defense Products & Services, saw a 9.27% gain. That means SPR that has outperformed its industry as a whole 88.13% since the earnings announcement. Small differences aren’t significant, but when the spread is large it indicates the stock is either much more or much less favored than its group as a whole.

Compared to peers

Another way to gauge performance is look at a stock compared to other stocks in its industry with similar market caps. SPR peer CAE Inc. (CAE) has seen a .99% stock price gain over about the last month, while another peer, Elbit Systems Ltd. (ESLT) saw a .02% gain. So with a return of 17.44%, Spirit AeroSystems Holdings Inc outgained CAE and beat ESLT’s price performance over the last month.

Honeywell International Inc. (HON) is one of the largest stocks in the industry in terms of market cap, and over the same period has returned 11.13% in price.

Compared to the S&P 500 Index

Finally, let’s see how Spirit AeroSystems Holdings Inc stock performance compares to the rest of the market by looking at it compared to the Standard & Poor’s 500 Index (.INX). Since 11/05, the S&P 500 index has returned around 3.4%, and again, SPR saw about a 17.44% gain during that time. Not bad.

So by putting the returns in context by these comparisons, we can see how a stock’s performance since earnings really measures up and make our investing decisions on SPR accordingly.

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Investors watch earnings filings with particular interest, as changes in a company’s ratios can be a good indication whether a company is on the right track, or headed the wrong way.

AeroVironment, Inc. (AVAV) is scheduled to release its earnings results Thursday. The company currently has an earnings per share ratio (EPS trailing twelve months) of .72 and investors are hoping to see that number grow. Let’s take a look at the performance of the stock since its previous earnings release.

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In the past three months, the stock has posted a 2.81% gain in terms of stock price. Over the same period, the Aerospace/Defense Products & Services industry group has returned a combined 10.13% gain.

So the eyes of investors turn to this new round of earnings.

Now, good earnings don’t always lead to higher stock prices, but keeping up on earnings is still a vital part of your fundamental stock analysis. Also note that companies often change earnings dates, so you should double-check them often.

When looking at earnings, it’s very helpful to see how stocks compare to others in its industry group. And even though two stocks may not be direct competitors, many analysts and institutional investors still compare them and evaluate them relative to other stocks in their group. 

AVAV is in the Aerospace/Defense Products & Services industry group where it competes for investor dollars with companies like Kaman Corporation (KAMN), which released its earnings on 11/05 and last reported a -29.65% decline in quarter-over-quarter EPS.

Another industry peer, Orbital Sciences Corp. (ORB) released its earnings on 10/27 and last reported a -13.52% decline in QOQ EPS.

Honeywell International Inc. (HON) is the stock with the biggest market cap in the Aerospace/Defense Products & Services industry at $30.04B. It closed yesterday at $39.37

To better understand how to evaluate earnings announcements and the affect they have on your portfolio, be sure to read Earnings Announcements and EPS.

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