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.

Rockwell Collins Inc. (COL) released its earnings announcement on 11/03. The company reported a change in quarter-over-quarter sales of -6.81% and posted an EPS (trailing twelve months) of 3.73.

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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 COL announcement (about 30 days ago), the stock has posted a 8.53% gain. Over that same period, the stock’s industry, Aerospace/Defense Products & Services, saw a 9.46% gain. That’s a difference of -9.83% that COL has under-performed its industry as a whole 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. COL peer Goodrich Corp. (GR) has seen a 12.12% stock price gain over about the last month, while another peer, L-3 Communications Holdings Inc. (LLL) saw a 8.87% gain. So with a return of 8.53%, Rockwell Collins Inc. saw less price gain than GR and under-performed LLL’s price performance over the last month.

Lockheed Martin Corporation (LMT) is one of the largest stocks in the industry in terms of market cap, and over the same period has returned 15.67% in price.

Compared to the S&P 500 Index

Finally, let’s see how Rockwell Collins Inc. stock performance compares to the rest of the market by looking at it compared to the Standard & Poor’s 500 Index (.INX). Since 11/03, the S&P 500 index has returned around 6.1%, and again, COL saw about a 8.53% 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 COL accordingly.

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