What is Guidance?
Prognoz (guidance)
In short
Management's own forecast of revenue and profit for the next quarter or year. It often moves the price more than the results themselves.
Also known as: outlook
Guidance is management's own outlook for the next quarter or the full year, given when the company reports earnings. It is usually a range for revenue and EPS, for example "next-quarter revenue of $2.0–2.1B".
Why it moves the price
A share price reflects the future, not the past. Last quarter's results are already known; guidance is the first official information about what comes next. So a company can beat the consensus and still fall on weak guidance — and vice versa.
How to read it
- Compare the midpoint of the guidance range with the analyst consensus.
- Note whether full-year guidance was raised, reaffirmed or cut.
- Listen to management's commentary on the conference call: what they say about demand, pricing and costs.
Limitations
Some management teams guide conservatively on purpose and then "beat". Some companies give no guidance at all. Guidance is an estimate, not a promise, and it can change. Prices swing sharply on earnings day, so knowing the expected move and keeping position size small helps.
Into the report price climbed from $75 to $80. EPS beat the estimate, but the company cut next quarter's guidance — price opened at $72.5 and kept sliding in the following days.
Example
Say a fictional company reports:
- Quarterly EPS: $1.10 vs a $1.00 consensus — a 10% beat.
- Next-quarter revenue guidance: $2.0–2.1B, midpoint $2.05B.
- Analyst consensus: $2.3B.
The guidance midpoint vs consensus is $2.05 ÷ $2.3 ≈ 0.891, i.e. about 10.9% below. Despite the beat, the market concludes the future is weaker than expected, and the stock falls, say, 8% in after-hours trading. Guidance, not the results, drove the move here.
Mistakes and tips
Don't judge by EPS alone — guidance is often the main driver on earnings day.
If you hold a position into earnings, remember a gap can jump straight past your stop-loss.
Compare the new guidance with the previous one: whether it was raised or cut is what matters.
The move after earnings sometimes continues for days — see post-earnings drift.
Frequently asked questions
- Why does a stock fall after good earnings?
- Usually because of weak guidance, or because the market expected even better results. The price reacts to future expectations.
- Where can I find a company's guidance?
- In the earnings press release and the earnings call transcript, usually published on the company's investor relations page.
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