A very concentrated growth stock portfolio can provide superior returns compared to the returns from other types of portfolios. However, since each company constitutes a large percentage of the portfolio’s value, a steep drop in one of the portfolio’s components can be harmful. Therefore, I believe that it’s imperative to possess a depth of knowledge about each company is in the portfolio. It’s also critical to keep very close tabs on news for each portfolio company as well its performance, competitors, and industry.
The Importance of Quarterly Updates
Companies with primary listings on the US exchanges provide quarterly updates to the public. In addition to providing financial statements, the companies will hold conference calls to update investors on the business. These updates are called earnings calls. For me, the new information that’s disclosed is vital to digest and integrate into my big picture view of the company and its place in my portfolio. Based on this new information, I may make decisions about whether I want to sell, buy more, or reallocate the weightings among my positions.
Speed is an Advantage
I am a retail investor so I control a very small portion of any company that I own. In fact, the number of shares that I hold is insignificant compared to the sea of shares that exist in the outstanding float. This means that I can add or sell shares on a dime without affecting the stock price. Large fund managers who control a large number of shares can’t quickly get into or out of a position without moving the stock price. It could take them many days to liquidate or build a new position. This is a big disadvantage for them.
In addition, stock analysts who might follow a few dozen stocks can’t quickly absorb the information and make decisions. They follow too many companies while I follow just a handful. These analysts must also update their models and then write up their conclusions and perhaps even get management approval before publishing their reports. Also, the analysts who do the research aren’t the same people who buy and sell shares. Thus, there’s an additional step in the process before their analysis leads to buying and selling.
As a small investor, I have a huge speed and lack of scale advantage. If I can quickly analyze what happened, I could even buy or sell in the low volume after hours market while the earnings call is still in progress. I’ve done this at times to get an advantage on my purchase or sale price.
Trading Profits
While I am mostly an investor, I do make bets (trading) primarily using options. I inform my trading decisions based on my view of the company, the price/valuation of the stock, and new information that I am constantly integrating into my overall view. Information gathered during earnings season is a very important component for my trading as well as for my investing decisions.
Information: What and When
To take capitalize on my speed advantage, I need to know when the relevant information will be released. I want to get that information as soon as it’s available. I also need to prepare myself for what information I want to receive. Specifically, I want any information that may affect the following:
- Stock price of my portfolio companies
- Change or reinforce my hypothesis or view of what I think will affect the stock price of my portfolio companies
Typically, the additional information that I will want is the earnings results and reports of other companies.
Estimating Earnings Release Dates
To prepare for earnings, I first estimate the dates when I expect each of my companies to report earnings. I’ve found that I can get the most accurate estimate by using the actual date that the company reported in the same quarter in the prior year. I pick the same week (e.g. second week in February) in which the company reported in the prior year. I’ve found that most companies report on the same day of the week; some companies typically report on Tuesdays while others on Wednesdays. This methodology allows me to pinpoint a precise date for my estimate.
Revenue Guidance
Next, I look at the revenue guidance that each company provided in its previous quarter’s report. I also look back a couple of years (or whatever past timeframe is available) and compare the guidance given to the actual results. Seeing this history may be indicative of what’s to come in the upcoming quarter. However, it is important to remember that in any given quarter there could be good reasons for a particular result such as a strong revenue beat or miss. The information is nuanced so the better I know my companies, the better I can be at understanding if what happened in the past should be weighted heavily or discarded as an outlier.
Earnings Dates and Results for Related Companies
Other companies that are not in my portfolio are of interest to me because they can provide insights into how my companies may preform. I am more interested in companies that report results before my company because this information can give me an advantage in predicting how my company may have performed in its last quarter.
- Other SaaS Companies: My current portfolio is very dominated by SaaS companies. Therefore, I am currently interested in other SaaS companies because their results can show how the shift from on-premise to the cloud progressed in the most recent quarter. I look at the financial metrics of these companies which I consider a datapoint and a small piece of the overall picture that forms in my mind. In addition, I pay attention to commentary/statements from management as these may be relevant to overall cloud adoption and digital transformation.
- Cloud Titans: Amazon (AMZN), MicroSoft (MSFT), and Alphabet/Google (GOOGL) provide companies a place to host their digital workflows in the cloud. In aggregate these three companies have most of the cloud hosting marketshare. AMZN and GOOGL separate out their AWS and GCP business revenue so investors can see how cloud adoption is progressing. MSFT does not break out Azure revenue but breaks out Intelligent Cloud which includes Azure as well as other cloud related revenue. However, during the earnings calls, MSFT does typically make comments on how Azure is doing. The cloud titans report their earnings results before most of the SaaS companies so this information can be taken into account for predicting how my companies might have performed.
- Competitors of Portfolio Companies: The results of competitors of my portfolio companies provide evidence for how the sector performed in the most recent quarter. I pay attention to their financial results and their management’s commentary to assess the strength of the sector’s business environment. For example, if CRWD is in my portfolio then I will also be interested in the results for PANW, FEYE, CYBR, and ZS. I am most interested in how well business in going in the sector. Since it is possible that my company is taking share away from a competitor, I carefully weigh the financial results. It’s nuanced, and there’s no hard and fast rule for how much I weigh each bit of information that I gather.
Creating a Dashboard
Each quarter, I take the information that I’ve described above and create a dashboard. This dashboard provides me one place where I can make sure that I don’t miss any information that’s vital for stock options trading or for reacting quickly to make portfolio allocation changes.
Example Dashboard (as of 1/30/21)
The example dashboard is as of 1/30/21. I continuously update the dashboard as new information becomes available. On the left, I’ve shown my portfolio companies, and, on the right, I’ve shown the related companies. The dates in plain black are my own estimates based on the methodology described above. I change the color to purple once the company has confirmed the earnings release date either by press release or on their investor relations webpage. I change the color to green once the company has released their quarterly results.
| Date | Rev Guide | Date | ||
|---|---|---|---|---|
| LSPD | 2/4/21 | MSFT | 1/26/21 | |
| PTON | 2/4/21 | 114.5% | NOW | 1/27/21 |
| DDOG | 2/11/21 | 44.3% | TEAM | 1/28/21 |
| NET | 2/11/21 | 41.2% | AMZN | 2/2/21 |
| BAND | 2/18/21 | FEYE | 2/2/21 | |
| GOLD | 2/18/21 | GOOGL | 2/2/21 | |
| NEM | 2/18/21 | ZEN | 2/4/21 | |
| SNOW | 3/3/21 | 90.4% | AYX | 2/9/21 |
| ZM | 3/3/21 | 330.8% | CYBR | 2/11/21 |
| DOCU | 3/11/21 | 48.4% | ROKU | 2/11/21 |
| CRWD | 3/18/21 | 64.7% | FSLY | 2/17/21 |
| BPRMF | 6/17/21 | SHOP | 2/17/21 | |
| TWLO | 2/17/21 | |||
| ZS | 2/18/21 | |||
| PANW | 2/22/21 | |||
| SQ | 2/23/21 | |||
| NVDA | 2/24/21 |
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.