The Stock Catalyst No Trader Should Ignore

Happy Wednesday!

Yesterday, as I always do during my Premarket Prep, I discussed which stocks were on the move and gave trading advice before the market opened.

One stock I mentioned to keep an eye on was Yoshitsu Co. Ltd. ADR (NASDAQ: TKLF). I saw the volume increasing on this true penny stock and knew it was one to watch.

By the way, I filmed my Premarket Prep session in the Big Apple on Tuesday since later in the morning, I was headed to the New York Stock Exchange. 

I’m always excited to visit the NYSE…I mean, I’m a trader! Why wouldn’t I be?

This time was especially cool since they invited me back to talk about our proprietary trading tools, Oracle and IRIS, specifically the ChatGPT 4.0 IRIS upgrade.

If you don’t know about IRIS and Oracle, my secret trading weapons, you need to! 

Oracle is an algorithmic system that scans the entire market every morning to identify price patterns it sees as predictive of winning trades that day. It then generates a list of 20 names along with entry prices and a green (buy) or red (short) signal. 

Learn more about Oracle here. 

And IRIS, is an awesome tool that leverages AI technology to give us weekly watch lists.

Subscribers to the program also get weekly analyst reports, training webinars, and best of all, access to the IRIS system itself. The tool operates much like ChatGPT to produce screeners, trading plans, and more.

Watch this presentation to see if IRIS is a good fit for you.

But back to TKLF…

I was definitely right when I told my subscribers that this one should be on their radars.

Look what it did:

So what made this stock start to spike premarket?

There’s a specific reason TKLF gained 166% in a little over two hours…

Yoshitsu Co. Ltd. ADR (NASDAQ: TKLF) had a nice win on Tuesday. 

Traders that got in premarket when it started to spike could have made a 166% gain*.

And anyone who decided to trade with less risk and get in after the morning bell, which I always recommend for new traders, still could have made a lot of money.

Oracle gave the green entry signal for TKLF at $0.45 per share. After hitting that price around 9:33 am Eastern, it topped out at $0.79 for a return of 75.56%*.

And speaking of trading with less risk, every trader, new or seasoned, must understand his or her risk tolerance and how to manage it.

Read my article to learn more about managing risk.

TKLF’s awesome price action yesterday was due to its Fiscal 2024 earnings release before the bell.

Here’s an excerpt from Yoshitu’s earnings release:

Why you should read earnings reports and why they matter for traders:

Good earnings can send a stock soaring, but you should understand the details before you start trading. Earnings reports can be confusing, particularly for new traders who see a stock drop despite what looked like a positive report.

What is an earnings report anyway?

A company publishes an earnings report to inform the public of how much money it’s making. This information is a big part of what determines its share value. It gives unbiased insight into a company’s financial health and can be a catalyst for stock runs.

These are the key metrics you’ll find in earnings reports:

Earnings Per Share (EPS) divides a company’s earnings by its number of shares, showing profitability on a per-share basis. 

By looking at EPS over time, you can identify the direction of the company’s financial trends. 

Price-to-Earnings (P/E) Ratio is calculated by dividing the share price by EPS, indicating whether a stock is overvalued or undervalued by the market. 

Be cautious with this one, though, since P/E isn’t a one-size-fits-all metric. It varies by industry and company growth stage. 

For example, a startup technology company might have a large P/E  compared to its industry peers. At first glance, you might think that means the company is overpriced…

This is when P/E requires a closer look. 

Remember, it’s normal for a startup that’s doing well to post zero to very little in earnings in the early years, and sometimes even negative earnings. So a stock well-liked by the market will have an outsized P/E relative to a mature company like, say, Microsoft Corporation. (NASDAQ: MSFT). 

In this case, the stock could be accurately priced since the market sees the true potential of the company when looking under the hood.

This is an example of when P/E is pretty much irrelevant to your analysis.

Understanding the 10-Q

While earnings press releases highlight what companies want you to see, the 10-Q is where the real story is told. This SEC-required document, filed quarterly, includes detailed financial statements, a balance sheet, and a cash flow statement. The annual 10-K offers even more comprehensive information, including business structure and long-term financial history.

What I look for in an earnings report:

EPS and Revenue are the basic indicators of a company’s financial performance.

Management’s Discussion and Analysis (MD&A) provides context and the future direction of the company.

Risk factors and market risks reveal potential threats to the company’s health,

What you should know when trading earnings winners: 

First, what is an earnings winner?

An earnings winner is a company whose stock price spikes after its earnings report…sometimes even if it reported a loss. 

This happens when the loss is less than what the market anticipated. Never look at earnings numbers in isolation. It’s all about how that data compares with what the market expected the company to report. 

This is why you’ll often see a headline like, “Company XYZ beats expectations and the stock soars…” 

And sometimes the opposite can happen. What looks like a great revenue number might be less than what analysts expected, and the stock falls.

I never hold a stock going into its earnings report. I wait for the report to come out and then trade based on the market’s reaction…That’s the real moment of truth.

I also never hold an earnings winner too long…

Case-in-point: our old friend Yoshitsu.

TKLF is a true penny stock which means it has a low float and tends to be volatile most of the time, despite earnings or fundamentals. That’s just the nature of a penny stock.

Look where it ended up later in the day after two spikes on Tuesday morning…

TKLF’s price action illustrates why you should never hold a penny stock earnings winner too long. 

But it also shows the potential for short-term gains with these types of stocks.

Are you new to penny stock trading? Watch my video below. It shows you everything you need to know if you’re just starting.

To sum up, here’s what I look for in earnings winners:

Volume: High trading volume indicates market excitement.

Percentage Gainer: Look for stocks up more than 5% in pre-market.

Market Reaction: I wait for the report and then trade based on the market’s response.

My final thoughts:

Earnings reports help you decode one of the market’s biggest catalysts. 

Earnings season is revving up as we speak, so learning how to interpret and trade on earnings is more important now than ever. 

Lucky for you, my friend and veteran trader Ben Sturgill has been working on an algorithm that he uses to predict earnings winners. . . He’s been testing it for the last 18 months and the success rate is pretty unbelievable. 

Ben and I are going live next Thursday, the 24th, to show you how to take advantage of the incredible opportunities his earnings tool reveals. You don’t want to miss it! 

I’ll let you know how to sign up tomorrow…Stay tuned!

Have a great day everyone. See you back here tomorrow. 

 

Tim Bohen

Lead Trainer, StocksToTrade