There are two sides to the earnings trade.
The first is the one I’ve spent plenty of time talking about. That’s leaning on weapons we have at Zacks to find stocks before they report that have the right combination of positive earnings estimate revisions, a strong earnings surprise history, improving fundamentals and momentum. You’re trying to put the probabilities in your favor before the numbers hit.
But there’s another side of this strategy that might be even more interesting.
What happens when a company does exactly what you wanted it to do, by beating earnings expectations, maybe beating revenue too, and the stock gets smoked anyway?
That’s where I start paying attention. Because nearly half of stocks that beat earnings estimates still finish the next trading session lower.
Think about that for a second. A one-year sample covering 1,250 U.S. earnings reports from September 2025 through September 2026 found that 47.3% of companies beating EPS estimates actually closed lower during the first session reacting to the report.
So much for “beat equals stock goes up.”
Even monster beats aren’t immune. Companies beating EPS estimates by 20% or more still finished lower 37.6% of the time. And there’s a reason for that.
Everybody Beats Earnings Now
The market knows the game. There’s the published estimate. There’s the whisper number. There’s guidance. There’s revenue. There are margins. There’s the conference call. And perhaps most importantly, there are the expectations already embedded in the stock price.
That's why a company can beat earnings by 10% and watch its stock drop 8%. The quarter might have been good. The expectations were simply better.
That disconnect creates opportunity.
Good Quarter, Bad Tape
When I see a stock drop 5%, 8%, maybe 10% after beating earnings, my first reaction isn't: “The market knows something. Stay away.” My reaction is: “Why?” That's the entire game. Sometimes the answer is obvious and ugly. Demand collapsed. Margins are deteriorating. Management slashed guidance. The EPS beat came from some accounting gymnastics while revenue missed badly.
Throw those stocks out. But sometimes you dig into the report and discover something very different. Maybe management issued conservative guidance. Maybe there was a one-time expense. Maybe revenue was perfectly fine but investors wanted more. Maybe the company increased spending because it sees a larger opportunity ahead. Or maybe the stock simply ran too far heading into earnings and traders decided to ring the register.
Those are very different situations from a business whose fundamentals are actually deteriorating. Yet on an earnings-day chart, they can look exactly the same.
Earnings Beats Have a Long Memory
There's another reason I like this setup. Wall Street has known about something called post-earnings drift for decades. The basic idea is remarkably simple, markets don't always incorporate new earnings information immediately.
The effect has weakened, particularly among large-cap stocks where armies of analysts and algorithms are tearing through every earnings report milliseconds after release. But the underlying idea still matters. Markets can underreact to genuinely improving fundamentals. That's especially interesting when the initial stock-price reaction is moving in the opposite direction.
That's Where My Strategy Flips
Before earnings, I'm trying to identify companies with a higher probability of delivering a quality beat. After earnings, I'm looking for something different. I'm looking for a quality beat that the market temporarily hates. That's the other side of the strategy.
Suppose one of the stocks on my radar reports earnings. EPS beats. Revenue beats or at least comes in comfortably around expectations. The fundamental trajectory remains intact. And the stock drops 7%.
Now it’s got my attention. Because instead of buying the stock ahead of an uncertain binary event, the event is behind me. I know the earnings number. I know the revenue number. I've heard the guidance. I've seen the market reaction. And somebody might be offering me the stock 7% cheaper anyway.
Continued . . .
------------------------------------------------------------------------------------------------------
Earnings “Surprise" Stocks to Buy Today
91 companies are scheduled to report earnings this coming week. What if you could know with a high degree of confidence which few would shock Wall Street by beating earnings expectations and pop in price?
Now you can.
Zacks' proprietary "ESP" formula predicts positive earnings surprises with unthinkable 80% accuracy. And while success isn’t guaranteed, recent trades have led to gains of +34.3%, +64.5%, and +78.2% in as little as 10 days.¹
You can be among the first to take advantage of our top stocks this earnings season.
Don’t delay: This portfolio closes to new investors midnight Sunday, October 11.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Don't Buy Every Earnings Dip
This is where discipline matters. I'm not proposing some caveman strategy where you scan for every stock down 5% after earnings and start smashing the buy button. The screen has two layers. The first layer happens before earnings.
I'm already looking for positive earnings estimate revisions, a history of earnings surprises, improving revenue trends and other indicators that suggest the company has a legitimate chance of producing a quality quarter.
Then comes layer two. After earnings, I expand the search to stocks that actually delivered the goods but were punished anyway. Now I'm asking the “Why?” which could make all the difference in the world.
Let Everybody Else Panic First
There's another wrinkle here I really like. After-the-close earnings beats have recently been more susceptible to selling than before-the-open reports. In that one-year sample, 51.2% of after-hours beats closed lower during the following session compared with 44.8% of before-the-open releases.
That makes intuitive sense. You get the headline after the bell. Then the conference call.
Then analysts start changing models. Then financial television spends the entire morning dissecting one sentence from the guidance. Then the opening bell rings and everybody reacts at once.
Sometimes that produces price discovery. Sometimes it produces an emotional purge. I don't need to decide which one it is at 9:31 a.m. Let the sellers sell. Let the chart establish itself. Then determine whether the fundamentals justify what just happened.
Weeks, Not Minutes
I'm not trying to scalp the opening gap. The thesis here is based on the idea that Wall Street occasionally overreacts to one part of an earnings report while underreacting to the broader fundamental trajectory. That takes time to unwind. So I'm thinking in terms of weeks.
Historical post-earnings drift research has generally looked at windows stretching toward 60 trading days. Older FactSet work has also shown the average performance following positive earnings surprises continuing to build beyond the immediate announcement window.
That's much closer to what I'm interested in. I'm not asking “Can this stock bounce tomorrow?” I'm asking, “Did I just get a 7% discount on a company whose earnings trajectory remains intact?” That's a completely different trade.
The Numbers Make the Hunting Ground Huge
Here's what really gets me excited about this. We're not talking about some obscure setup that happens three times a year. If somewhere around 45% to 50% of EPS beats are finishing the reacting session lower, there are hundreds of potential setups flowing through the market every earnings season.
Most aren't going to qualify. Good. I don't want most of them. I want the ones where the numbers tell one story and the initial stock reaction tells another. And I especially want the companies where my pre-earnings process was already telling me that earnings momentum was improving.
Now you've stacked two filters on top of each other. First, identify companies more likely to produce legitimate earnings strength. Then identify which of those companies the market may have punished too aggressively.
The Headline Isn't the Trade
This is really the heart of the strategy. An earnings beat isn't automatically bullish. A post-earnings selloff isn't automatically bearish. Both are pieces of information. The opportunity comes from understanding why they disagree.
If a company beats earnings because business is improving, revenues are healthy, estimates remain supported and the long-term trajectory hasn't changed, I'm not necessarily scared because traders knocked the stock down 8%.
I might be excited. Especially if the market is selling because management didn't satisfy an expectation that was never sitting in the published consensus estimate in the first place. Wall Street spends weeks building expectations into stocks before earnings. Then everybody tries to interpret the same report simultaneously.
That's a recipe for overshooting in both directions. My pre-earnings strategy tries to get ahead of the surprise. This strategy does the opposite. It lets the surprise happen. It lets Wall Street react. It lets the sellers throw their tantrum, then it asks one simple question:
Did the business get 8% worse overnight, or did the stock just get 8% cheaper?
Find the right answer to that question, and some of the ugliest post-earnings charts on your screen could become the most interesting opportunities in your portfolio.
New Surprise Stock to Post Monday Morning
Check our live recommendations right now, and be first to the one I’m adding Monday. You can take advantage of ripples of buying even before a company reports earnings.
Don't miss your chance to beat Wall Street to the punch and make the most of the potential double-digit price pops. Our signals have led us to recent gains like +34.3%, +64.5%, and +78.2% in as little as 10 days.¹
Bonus Report: Another reason to look into this now is that you are also invited to download our just-released "Early Warning Alert" report. It reveals Stocks to Sell BEFORE They Report Earnings in the Coming Weeks. Our strategy works both ways, and you can use this report to avoid companies that are more likely to report negative surprises.
See our Surprise Trader stocks and “Early Warning Alert” before the deadline - Sunday, October 11 >>
All the Best,
Dave
Dave Bartosiak is Zacks' resident earnings surprise expert. He selects stocks and delivers daily commentary for our Surprise Trader portfolio.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.
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A New Wrinkle in the Earnings Trade
There are two sides to the earnings trade.
The first is the one I’ve spent plenty of time talking about. That’s leaning on weapons we have at Zacks to find stocks before they report that have the right combination of positive earnings estimate revisions, a strong earnings surprise history, improving fundamentals and momentum. You’re trying to put the probabilities in your favor before the numbers hit.
But there’s another side of this strategy that might be even more interesting.
What happens when a company does exactly what you wanted it to do, by beating earnings expectations, maybe beating revenue too, and the stock gets smoked anyway?
That’s where I start paying attention. Because nearly half of stocks that beat earnings estimates still finish the next trading session lower.
Think about that for a second. A one-year sample covering 1,250 U.S. earnings reports from September 2025 through September 2026 found that 47.3% of companies beating EPS estimates actually closed lower during the first session reacting to the report.
So much for “beat equals stock goes up.”
Even monster beats aren’t immune. Companies beating EPS estimates by 20% or more still finished lower 37.6% of the time. And there’s a reason for that.
Everybody Beats Earnings Now
The market knows the game. There’s the published estimate. There’s the whisper number. There’s guidance. There’s revenue. There are margins. There’s the conference call. And perhaps most importantly, there are the expectations already embedded in the stock price.
That's why a company can beat earnings by 10% and watch its stock drop 8%. The quarter might have been good. The expectations were simply better.
That disconnect creates opportunity.
Good Quarter, Bad Tape
When I see a stock drop 5%, 8%, maybe 10% after beating earnings, my first reaction isn't: “The market knows something. Stay away.” My reaction is: “Why?” That's the entire game. Sometimes the answer is obvious and ugly. Demand collapsed. Margins are deteriorating. Management slashed guidance. The EPS beat came from some accounting gymnastics while revenue missed badly.
Throw those stocks out. But sometimes you dig into the report and discover something very different. Maybe management issued conservative guidance. Maybe there was a one-time expense. Maybe revenue was perfectly fine but investors wanted more. Maybe the company increased spending because it sees a larger opportunity ahead. Or maybe the stock simply ran too far heading into earnings and traders decided to ring the register.
Those are very different situations from a business whose fundamentals are actually deteriorating. Yet on an earnings-day chart, they can look exactly the same.
Earnings Beats Have a Long Memory
There's another reason I like this setup. Wall Street has known about something called post-earnings drift for decades. The basic idea is remarkably simple, markets don't always incorporate new earnings information immediately.
The effect has weakened, particularly among large-cap stocks where armies of analysts and algorithms are tearing through every earnings report milliseconds after release. But the underlying idea still matters. Markets can underreact to genuinely improving fundamentals. That's especially interesting when the initial stock-price reaction is moving in the opposite direction.
That's Where My Strategy Flips
Before earnings, I'm trying to identify companies with a higher probability of delivering a quality beat. After earnings, I'm looking for something different. I'm looking for a quality beat that the market temporarily hates. That's the other side of the strategy.
Suppose one of the stocks on my radar reports earnings. EPS beats. Revenue beats or at least comes in comfortably around expectations. The fundamental trajectory remains intact. And the stock drops 7%.
Now it’s got my attention. Because instead of buying the stock ahead of an uncertain binary event, the event is behind me. I know the earnings number. I know the revenue number. I've heard the guidance. I've seen the market reaction. And somebody might be offering me the stock 7% cheaper anyway.
Continued . . .
------------------------------------------------------------------------------------------------------
Earnings “Surprise" Stocks to Buy Today
91 companies are scheduled to report earnings this coming week. What if you could know with a high degree of confidence which few would shock Wall Street by beating earnings expectations and pop in price?
Now you can.
Zacks' proprietary "ESP" formula predicts positive earnings surprises with unthinkable 80% accuracy. And while success isn’t guaranteed, recent trades have led to gains of +34.3%, +64.5%, and +78.2% in as little as 10 days.¹
You can be among the first to take advantage of our top stocks this earnings season.
Don’t delay: This portfolio closes to new investors midnight Sunday, October 11.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Don't Buy Every Earnings Dip
This is where discipline matters. I'm not proposing some caveman strategy where you scan for every stock down 5% after earnings and start smashing the buy button. The screen has two layers. The first layer happens before earnings.
I'm already looking for positive earnings estimate revisions, a history of earnings surprises, improving revenue trends and other indicators that suggest the company has a legitimate chance of producing a quality quarter.
Then comes layer two. After earnings, I expand the search to stocks that actually delivered the goods but were punished anyway. Now I'm asking the “Why?” which could make all the difference in the world.
Let Everybody Else Panic First
There's another wrinkle here I really like. After-the-close earnings beats have recently been more susceptible to selling than before-the-open reports. In that one-year sample, 51.2% of after-hours beats closed lower during the following session compared with 44.8% of before-the-open releases.
That makes intuitive sense. You get the headline after the bell. Then the conference call.
Then analysts start changing models. Then financial television spends the entire morning dissecting one sentence from the guidance. Then the opening bell rings and everybody reacts at once.
Sometimes that produces price discovery. Sometimes it produces an emotional purge. I don't need to decide which one it is at 9:31 a.m. Let the sellers sell. Let the chart establish itself. Then determine whether the fundamentals justify what just happened.
Weeks, Not Minutes
I'm not trying to scalp the opening gap. The thesis here is based on the idea that Wall Street occasionally overreacts to one part of an earnings report while underreacting to the broader fundamental trajectory. That takes time to unwind. So I'm thinking in terms of weeks.
Historical post-earnings drift research has generally looked at windows stretching toward 60 trading days. Older FactSet work has also shown the average performance following positive earnings surprises continuing to build beyond the immediate announcement window.
That's much closer to what I'm interested in. I'm not asking “Can this stock bounce tomorrow?” I'm asking, “Did I just get a 7% discount on a company whose earnings trajectory remains intact?” That's a completely different trade.
The Numbers Make the Hunting Ground Huge
Here's what really gets me excited about this. We're not talking about some obscure setup that happens three times a year. If somewhere around 45% to 50% of EPS beats are finishing the reacting session lower, there are hundreds of potential setups flowing through the market every earnings season.
Most aren't going to qualify. Good. I don't want most of them. I want the ones where the numbers tell one story and the initial stock reaction tells another. And I especially want the companies where my pre-earnings process was already telling me that earnings momentum was improving.
Now you've stacked two filters on top of each other. First, identify companies more likely to produce legitimate earnings strength. Then identify which of those companies the market may have punished too aggressively.
The Headline Isn't the Trade
This is really the heart of the strategy. An earnings beat isn't automatically bullish. A post-earnings selloff isn't automatically bearish. Both are pieces of information. The opportunity comes from understanding why they disagree.
If a company beats earnings because business is improving, revenues are healthy, estimates remain supported and the long-term trajectory hasn't changed, I'm not necessarily scared because traders knocked the stock down 8%.
I might be excited. Especially if the market is selling because management didn't satisfy an expectation that was never sitting in the published consensus estimate in the first place. Wall Street spends weeks building expectations into stocks before earnings. Then everybody tries to interpret the same report simultaneously.
That's a recipe for overshooting in both directions. My pre-earnings strategy tries to get ahead of the surprise. This strategy does the opposite. It lets the surprise happen. It lets Wall Street react. It lets the sellers throw their tantrum, then it asks one simple question:
Did the business get 8% worse overnight, or did the stock just get 8% cheaper?
Find the right answer to that question, and some of the ugliest post-earnings charts on your screen could become the most interesting opportunities in your portfolio.
New Surprise Stock to Post Monday Morning
Check our live recommendations right now, and be first to the one I’m adding Monday. You can take advantage of ripples of buying even before a company reports earnings.
Don't miss your chance to beat Wall Street to the punch and make the most of the potential double-digit price pops. Our signals have led us to recent gains like +34.3%, +64.5%, and +78.2% in as little as 10 days.¹
Bonus Report: Another reason to look into this now is that you are also invited to download our just-released "Early Warning Alert" report. It reveals Stocks to Sell BEFORE They Report Earnings in the Coming Weeks. Our strategy works both ways, and you can use this report to avoid companies that are more likely to report negative surprises.
See our Surprise Trader stocks and “Early Warning Alert” before the deadline - Sunday, October 11 >>
All the Best,
Dave
Dave Bartosiak is Zacks' resident earnings surprise expert. He selects stocks and delivers daily commentary for our Surprise Trader portfolio.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.