As we wrap up this recent quarter's earnings season, one thing that strikes me is the amount of extreme reactions to the earnings announcements.

Seems like either a surprise up or surprise down was met with an immediate double-digit price reaction - often in gap fashion.

The reasoning behind the market's aggressive reactions this go-around is an interesting topic.

But today, I'm more concerned with why, as an investor, you should care about surprises.

First off, an earnings surprise is simply when the company announces earnings above or below the consensus estimate (i.e., the market) going into the report.

If the company reports earnings above expectations, that's a positive surprise.

If they report earnings below expectations, that's a negative surprise.

The price reaction to such a surprise, by and large, is obvious - up for an upward surprise and down for a downward surprise.

But let's review why it's so important and what it really means.

In short, an earnings surprise is a signal of what a company's future earnings could/are going to look like.

An upside surprise could mean that the company will see better earnings than first expected.

Meanwhile, a downside surprise would likely be interpreted as a company that will see lower earnings than first expected.

The magnitude of the surprise will of course determine the size of the market's reaction.

The idea though is that it's not just the extra dollars and cents that the company makes in a certain period, but what it implies for future earnings periods as well.

An extra 10-cent surprise in one quarter is great. But 10 cents times 4 quarters, that's an extra 40 cents.

Or let's look at it in percentages - an extra 10% in one quarter is exciting. But now let's increase full year earnings by 10% or maybe even more. That's even more exciting.

The often extreme market reactions are about re-pricing the company's earnings prospects as fast as possible.

But not all surprises are created equal.