The ‘Trick’ to Spotting Stock Market Opportunities: Leveraging the Last Four Earnings Reports
Key Takeaways
- TTM (Trailing Twelve Months) Stock Analysis – Reviewing the last four earnings reports provides real-time insights into a company’s financial health, eliminating outdated data and improving stock valuation strategies.
- Novo Nordisk & Lululemon: TTM Case Studies – Novo Nordisk stock dipped due to clinical trial results and competition, despite strong fundamentals. Lululemon’s decline was a market overreaction, proving that TTM can reveal undervalued stocks.
- How to Use TTM for Smarter Investing – Tracking TTM trends helps identify undervalued stocks, avoid value traps, and spot earnings momentum. Forecaster AI simplifies this process, enabling data-driven investment decisions.
Predicting the future of the stock market is impossible, but identifying valuable opportunities isn’t. A powerful yet simple method to uncover potential winners is by leveraging the last four earnings reports, commonly referred to as the Trailing Twelve Months (TTM).
In this article, we will explore how TTM can be a game-changer in stock analysis, using real-life examples from Novo Nordisk and Lululemon, and discuss why investors often misjudge short-term stock movements.
Understanding the Trailing Twelve Months (TTM)
Publicly listed companies must release their financial statements every three months. This means that each year consists of four earnings reports that reflect the company’s revenue, net income, and other key financial metrics.
What is TTM and Why Does it Matter?
TTM (Trailing Twelve Months) refers to the last four consecutive quarters of financial data, providing a real-time snapshot of a company’s financial health. Unlike traditional annual reports, which summarize performance for a calendar or fiscal year, TTM captures the most recent business trends and eliminates outdated data.
For example, if we analyze a company’s TTM in June, we would aggregate:
- The earnings report from June
- The earnings report from March
- The earnings report from December (previous year)
- The earnings report from September (previous year)
By doing so, we get an updated, rolling metric that reflects the company’s actual momentum.
Using TTM with The Forecaster Terminal
Forecaster simplifies TTM access and analysis:
- Fundamentals: Go to the “Fundamentals” section.
- Find Data: Select “Raw” and then “Quarterly”, You will then find on the right of your screen the sum of the previous four quarterly data, commonly known as the TTM.
Real-Life Example: Novo Nordisk’s Stock Market Fluctuations
Novo Nordisk, Europe’s largest company, became a stock market spiking interest after launching a revolutionary weight-loss drug. However, despite record-breaking sales and net income exceeding $100 billion, its stock recently faced downward pressure.
Why Did Novo Nordisk’s Stock Drop?
Several factors contributed to its decline:
Disappointing Clinical Trial Results: Novo nordisk already has two different weight loss drugs: Wegovy and Saxenda. Investors had high expectations for Novo Nordisk’s new obesity drug, CagriSema, anticipating a 24% weight loss outcome over a 68 Week trial. However, the trials reported a 22.7% result, triggering a sharp sell-off.
This result is also disappointing considering clinical results of competitors such as Eli Lilly are getting better, with Eli Lilly’s Zepbound promising an average 24.4% over 48 weeks.
Geopolitical Uncertainty: Speculation about former U.S. President Donald Trump’s stance on Greenland (Denmark’s territory, Novo Nordisk’s home country) raised concerns over regulatory risks in the U.S. market.
Increasing Competition: As previously stated. Rival pharmaceutical companies, including Eli Lilly, introduced their own weight-loss drugs, intensifying market competition.
Generic and Compounded Medications: The market is witnessing a surge in generic and compounded versions of popular weight-loss drugs. India’s pharmaceutical industry, for instance, is preparing to introduce affordable alternatives to branded medications like Saxenda, potentially leading to significant price reductions and increased accessibility.
Telehealth providers such as Hims & Hers Health are capitalizing on this trend by offering compounded versions of semaglutide at a fraction of the cost of branded drugs. This approach has sparked controversy and drawn scrutiny from pharmaceutical companies and lawmakers due to concerns about safety and regulatory compliance.
Market Dynamics and Future Outlook: The global market for GLP-1 receptor agonists, the class of drugs to which Wegovy and Zepbound belong, is projected to exceed $140 billion by 2030.
To maintain its competitive edge, Novo Nordisk is investing in the development of new treatments, including oral medications like amycretin, which have shown promising early trial results.
Despite these efforts, Novo Nordisk’s CEO, Lars Fruergaard Jørgensen, has expressed concerns about the company’s future amid intensifying market pressures, including competition from Eli Lilly, high manufacturing costs, and pricing challenges, particularly in the U.S.
What Can We Learn from Novo Nordisk’s case?
Despite temporary negative sentiment, fundamentals always prevail in the long run. The company’s TTM data showed strong revenue growth and rising net income, which suggests that its stock price may eventually rebound once the market corrects its overreaction.
Lululemon: A Case of Market Overreaction
Lululemon is another excellent example of how TTM can highlight overlooked opportunities. At the beginning of 2024, Lululemon’s stock plunged, not due to weak performance but because of broader industry concerns.
Nike’s Struggles: Investors unfairly lumped Lululemon with Nike, assuming the entire athletic apparel sector was underperforming.
Strong Financials Ignored: Lululemon’s TTM net income increased from $1.55 billion to $1.7 billion, yet the market was overly pessimistic.
As savvy investors started recognizing the company’s solid fundamentals, Lululemon’s stock rebounded significantly.
Why Tesla is Facing Headwinds
Tesla’s recent struggles in the stock market can also be explained through the TTM lens. Although its sales have grown modestly, its net income has declined by 50% compared to the previous year. Since stock prices tend to follow earnings momentum, Tesla’s downward trajectory is understandable. As we can see in this image, Tesla’s stock price seems to be heading towards its Net income equilibrium.
Contrast this with Nvidia, whose stock skyrocketed in tandem with its net income surge, proving once again that fundamentals drive long-term stock performance.
How to Apply This Strategy
By regularly analyzing TTM trends, investors can:
- Identify undervalued stocks: Companies experiencing temporary sell-offs despite strong earnings growth.
- Avoid value traps: Stocks that appear cheap but have deteriorating fundamentals.
- Track earnings momentum: Companies with consistent profit increases are more likely to outperform the market.
Conclusion
The TTM approach provides a clear, data-driven method to evaluate stock market opportunities. While market sentiment can drive short-term volatility, long-term investors should focus on earnings growth and net income trends. The global trend of obesity seems to be increasing, so are investments to enter the market of obesity medicinals by competitors such as Eli Lilly. Might the market have been wrong on what is currently the pharmaceutical company with the biggest market share in the market of obesity pharmaceuticals?
By leveraging tools like Forecaster, you can stay ahead of earnings reports, set reminders for key financial releases, and make more informed investment decisions. At the end of the day, stocks follow fundamentals—invest accordingly!