Quarterly earnings: how to read guidance without getting burned

2026-07-06 · By Lubin Danilo, founder of Lubin Investment

Every quarter, hundreds of companies report earnings, and the market often reacts more to guidance than to the numbers themselves. A company can beat analyst consensus and still fall if its guidance disappoints. My method deliberately ignores this quarterly noise to focus on five-year trends, which are far harder to manipulate.

For Q2 2026, analysts expect S&P 500 earnings growth of about 23.3%, up from 18.8% expected at the end of March: expectations were raised along the way.
57% of S&P 500 companies that issued guidance for this quarter raised it, well above the 5 and 10 year average of 41%.
A quarter that beats expectations can still send a stock down if the guidance, the company's own forecast for what comes next, disappoints.
My method deliberately ignores single-quarter noise: it looks at the consistency of growth and cash generation over five years, a much harder horizon to dress up.

Why the market reacts to forecasts, not results

Every quarter, in what is called earnings season, hundreds of listed companies report their revenue and profit for the last three months. Logically, you might think the market reacts to these numbers: good results, the stock rises, bad results, it falls. In reality, what moves the price far more often is guidance, meaning the forecast the company itself gives for the months ahead.

That is why you regularly see a company report profit above analyst expectations, and still drop 10% the same day. The market does not look backward, it looks forward. An excellent past quarter paired with a cautious forecast for what comes next can worry investors more than a disappointing quarter paired with optimistic guidance.

What the current season is saying

For the second quarter of 2026, analysts expect S&P 500 earnings to grow about 23.3% year over year, a figure raised from the 18.8% expected at the end of March. And crucially, 57% of companies that issued guidance for this quarter raised it, against a historical average of 41% over five and ten years. In other words, companies themselves are more optimistic than usual about their own near-term future. Part of that improvement comes from specific sectors, notably energy and technology, which carry a large share of the upward revision.

This kind of statistic is worth knowing, but it says nothing about ONE specific company. It is a market average, not an individual signal. One company can easily disappoint in an otherwise optimistic season, and another can positively surprise in a gloomy one.

Why I do not build my method on this

Here is the problem with guidance: it is given by the company's own management, which has every incentive to manage market expectations. A skilled company will sometimes deliberately give a cautious forecast so it can easily beat it the following quarter, a well-known game called sandbagging. Another will overpromise to support its stock short-term, at the risk of disappointing later. Either way, a single quarter's guidance is a noisy signal, hard to interpret without knowing each management's communication habits.

That is exactly why my method deliberately ignores this quarterly noise. Instead of reacting to a single forecast or figure, I look at the consistency of revenue and free cash flow growth over five years. A single quarter can be shaped by management's messaging. Five years of actual results, much less so.

How to read an earnings season without getting burned

If you want to follow earnings season without falling into the short-term noise trap, here is what I recommend focusing on: the trend across several quarters, not just one; if guidance disappoints, try to understand why (a one-off external problem, or a genuine structural slowdown in the business); and above all, never react in the heat of the moment on report day. Markets often overreact in the hours following an announcement, before the information is properly digested.

What I actually do for each stock

On my site, every analysis page shows the next known earnings date for a stock, along with its latest earnings surprise (did it beat or miss consensus, and by how much). But that is never the central criterion of my quality score, which rests on five-year trends: revenue growth, cash per share, margins, debt. Earnings season is a moment to check the underlying trajectory is still intact, not a verdict in itself.

FAQ

Why can a stock drop despite good results?

Because the market mostly reacts to guidance, the forecast a company gives for the months ahead. A strong past quarter paired with a cautious forecast can worry investors more than a disappointing quarter with optimistic guidance.

What do analysts expect for Q2 2026?

S&P 500 earnings growth of about 23.3% year over year, raised from 18.8% expected at the end of March, with 57% of companies raising their own forecast (versus a 41% historical average).

What is sandbagging in guidance?

It is when a company deliberately gives a cautious forecast so it can easily beat it the following quarter, a common expectations-management practice among some management teams.

Why doesn't my method use quarterly guidance?

Because it is given by management itself and can be biased in either direction. I prefer the consistency of revenue and cash growth over five years, a much harder horizon to manipulate.

How can I check a stock's next earnings date?

Every analysis page on my site shows the next known earnings date and the company's latest earnings surprise, next to its quality score out of 10.

Analyze a stock on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).