[Beginner's Guide to Stock Market] The Return of Earnings Season... How Does 'Consensus' Affect Stock Prices?

Editor's Note[Joorini Guide] is a smart investment guide for 'Joorini (stock + beginner)'. We will kindly and easily explain stock stories that are unfamiliar to Joorini.

[Asia Economy Reporter Kwon Jaehee] The earnings season for companies has arrived.

Four times a year. Companies announce their earnings quarterly.

By disclosing how much they earned quarterly, semi-annually, and annually, they provide appropriate information to investors.

In other words, earnings can be seen as a company's 'report card.'

You may have often seen the term 'consensus' in articles about company earnings.

So, what exactly is this consensus, and how does it affect stock prices?

What is Consensus?

The dictionary meaning of consensus is 'agreement.'

In earnings articles, you might have seen phrases like 'Samsung Electronics' Q4 operating profit fell short of consensus.'

Operating profit fell short of agreement?

That sounds somewhat unnatural in context.

In the stock market, consensus is commonly understood as the 'market expectation.'

For example, if the consensus for Samsung Electronics' Q4 operating profit is 2 trillion won, it means the market expectation for Samsung Electronics' Q4 operating profit is 2 trillion won.

Where Does Consensus Come From?

How is consensus created?

The figure of 2 trillion won as Samsung Electronics' operating profit consensus didn't just appear out of nowhere; there must be a reason it came out as 2 trillion won.

Consensus is like this.

Before Samsung Electronics' Q4 earnings announcement, various securities firms released their forecasts for Samsung Electronics' Q4 operating profit.

KB Securities forecasted 2 trillion won, Shin Young Securities 1.09 trillion won, Daishin Securities 1.519 trillion won, Ebest Investment & Securities 1 trillion won, Samsung Securities 2.532 trillion won, Kiwoom Securities 2.489 trillion won, and so on, with each securities firm's analysts providing different forecasts.

Consensus is the average of the forecasts provided by analysts, calculated by excluding the highest and lowest values and averaging the remaining ones.

The Relationship Between Consensus and Stock Prices

So, what is the relationship between consensus and stock prices?

As mentioned several times in [Joorini Guide], stock prices move based on sentiment.

Market expectations mean the numbers the market is anticipating.

Even if Samsung Electronics posts better earnings than other companies, if investors have high expectations for Samsung Electronics, some investors may be disappointed despite the good results.

This would lead to a decline in stock prices.

This is why consensus is important for stock prices.

If company A's Q4 operating profit consensus is 10 billion won, but the actual earnings are 15 billion won, the market will cheer and the stock price will soar.

Conversely, if the actual earnings are 8 billion won, investors will be disappointed, and the stock price will fall.

During earnings season, while it is important to see whether profits increased or decreased compared to the previous year, it is more important for stock prices whether the results beat the market's expectation, the 'consensus.'

Dear Joorini,

Be sure to check the consensus during earnings season.

Since it is an important factor affecting stock prices, you can gauge whether stock prices will fall or rise and plan your strategy accordingly.

By consistently observing consensus, actual earnings, and stock prices during the four earnings seasons each year, I believe you will develop insight and confidence as an investor.

Wishing all Joorini wise investments today, I will end this article here.

This article is from [Joorini Guide], published weekly by Asia Economy. We explain stock-related financial news and difficult economic stories in an easy and friendly way so that stock beginners can understand. By clicking subscribe, you can receive articles for free.

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This content was produced with the assistance of AI translation services.