Earnings estimates made by Wall Street analysts are important to the prices of stocks. Each quarter, companies try to exceed the estimates that analysts have made. If companies exceed expectations, they're usually rewarded with a pop up in their stock price. If companies fall short of expectations--or sometimes if they only meet expectations--their stock prices can take a beating.
Morningstar doesn't recommend relying too heavily on whether or not companies meet or beat quarterly estimates; a company that misses estimates can still have great growth prospects. Conversely, a company that exceeds expectations may face roadblocks ahead.
Nevertheless, quarterly earnings figures are useful. A company that consistently exceeds expectations quarter after quarter is most likely doing something right. But a company that has consistently fallen short of estimates for several consecutive quarters may have problems.
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