The release of company’s earnings report is a crucial moment for all stakeholders: for the management, for the employees, but especially for investors. This is when they all find out if the company made the expected profit, if it got to the break even point or, on the contrary, if it is on down the hill trend. Consequently, this is the moment its shares’ price is re-evaluated on the market and it can soar or drop, depending on the kind of data the report reveals.

The week before a company’s earnings report is released is a highly speculative period, when prices can skyrocket, whether this will be proven with a good reason or not. If the first scenario proves to be the case, this is a very good reason not to buy stock before an earnings report. You don’t want to buy for $10 what you cannot sell afterwards for $2. No one else but the big high tech name Apple has such a bitter sour story in its history, when its stocks went from over $700 a share to under $400 in only a few months.

As with any other types of speculations, there are also chances you will not be at a loss and you will even earn a small fortune, should the rumors be that the company is not doing well when it actually thrives. However, this is not usually the case. We see more often stories of artificially bumped prices falling practically overnight. You wouldn’t like your lifetime savings to go down the river because of a bad investment decision.

Most analysts agree that the best time to buy stocks is not before the release of an earnings report, but right after it. There is actually a business concept called PEAD (Post Earnings Announcement Drift) referring to the period between the release of the earnings report and the moment when traders start pricing on the recently acquired information. If the positive earnings came as a surprise, the PEAD length will be higher, allowing smart investors to act promptly and buy stocks before their prices reach the ceiling.

However, the last earnings report should never be your sole and only criteria when deciding whether to buy stocks with a certain company or not. For a wiser and more informed decision, you have to look into the company’s potential for future growth and this involved a lot more knowledge than just some figures and percentages. Where is the area that company operates in going? What are the main trends? How is the company positioned compared to its competitors? What’s its edge over them? These are just a few questions that will help you better analyze the situation and make a smart investment decision.

Buying stock is a decision that requires a thorough knowledge of the market and a sane strategy. Instead of deciding whether to buy or not based on rumors, it is advisable you follow a company throughout the season and avoid buying stock before the earnings report get released to the public. This way, you will have more input and you will make your decision based on knowledge, not on speculations.