1 September 1994Financial Analysts JournalVolume 50, Issue 5
Falling in Love Again—Analysts’ Estimates and Reality
Michelle R. Clayman, CFA
Robin A. Schwartz
An important factor investors use to evaluate stocks for investment is earnings per share. Many investors focus obsessively on EPS, comparing actual reported numbers with estimates and acting aggressively on the results. A comparison of monthly earnings estimates and actual earnings for 399 companies from 1982 through 1992 showed that, on average, estimated first month earnings were 57.1 percent higher than actual earnings. Estimates of full-year earnings made in the final month of the fiscal year still overestimated reported results, by 11.9 percent. Most of this overestimation bias was from companies that had been forecast to have positive earnings but actually had negative earnings. Market participants should factor in innate overestimation biases when making stock valuation judgments.
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Financial Analysts Journal
CFA Institute Member ContentPublisher Information
Association for Investment Management and Research
3 pages doi.org/10.2469/faj.v50.n5.66ISSN/ISBN: 0015-198X
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