While buy and hold investors continue to get fooled into buying the bear market rallies, we’ll continue to look for time tested short term trades. Nothing moves stocks better and more predictably than earnings events. On tap after the closing bell tonight is Bob Evans Farms (BOBE)
The full service restaurant company is due to report Q2 earnings after the bell tonight, and analysts polled by Thomson Reuters are looking for a profit of $0.44 per share on revenue of $437.2 million.
While traders can look at earnings and guidance versus expectations for comfort, a clear indication of the markets view of a company’s earnings can be determined by the positive or negative trading activity following an earnings release in the after-hours trading session. In other words, historical data indicaticates the market tends to react properly after-hours in pricing earnings news into BOBE shares. This isn’t the case for all stocks, but it certainly is for BOBE.
In the near-term, the stock has developed a solid trend of extending gains or losses in the after-hours to the next day’s close following an earnings announcement. Over the last seven quarters, shares of BOBE have added significantly to its after-hours earnings related rise of fall by the close the following day.
While that’s interesting, how do I take advantage of that? Simple. Trade after-hours. To be more specific, take a position in the after-hours (around 6 pm EST) that is consistent with the after-hours trading activity. In other words, if the stock is trading higher than the close at 6 pm EST this evening, buy it. Otherwise take a short position if the stock is trading lower from the 4 pm EST close.
Looking back at the last seven quarters, you can see how the taking a position in the after-hours would have netted nice profits by the close the following day.
On Aug. 12, 2008, the stock fell 1.8% during evening trading after the company beat with earnings by a penny though missed with revenue. The decline swelled to 9.9% the next day.
On June 3, 2008, the stock gained 2.1% during evening trading after reporting shy of the Street view with Q4 sales, but beating with earnings and guiding in line. The gain swelled to 17.2% the next day.
On Feb. 12, 2008, the stock gained 1.1% during evening trading after a Q3 beat and guidance that straddled the Street view. The gain widened to 7% the next day.
On Nov. 12, 2007, BOBE firmed 4.3% in after-hours trade after reporting Q2 results up from year ago levels. It jumped higher the next day, closing the Nov. 13 regular session up 15.1%.
On Aug. 13, 2007, BOBE edged down 0.1% in after-hours trade after the company reported Q1 results up over year ago levels and reaffirmed guidance. It added to the downside in the Aug. 14 regular session, sliding 5.3% by the closing bell.
On June 4, 2007, BOBE dipped 0.1% in night trade despite topping Q4 and FY07 estimates and offering FY08 EPS guidance that's in line to above Street views. Shares continued to weaken the next day, ending the regular session down 2.3%.
On Feb. 15, 2007, BOBE gained 2.1% in the evening session after the company reported ahead of the Street with EPS though sales miss and guidance straddles. The stock gained by a stronger 4.2% the next day.
Once you get a taste after-hours trading, you’ll never look back. Keep your powder dry for other earnings related trades coming up.
