Earnings Surprise
How far reported results (mainly EPS) differ from the market's expectation (consensus) — beating it is a surprise, missing it a shock.
In plain terms
Before a company reports results, brokerage analysts put out estimates of "EPS this quarter will be roughly this much." The average of those estimates is the consensus (the market's expectation).
An earnings surprise is how far the actual reported number strayed from this expectation. Better than expected is an "earnings surprise" (a positive shock); worse is an "earnings shock."
What it tells you
Price already reflects the market's expectation to some degree. So "results better than expected" move the price more than "good results." That is why a record result can still see the price fall if it misses expectations.
An earnings surprise shows "the result versus market expectation" more than "company strength." So the same result can be a surprise or a shock depending on where the expectation sat.
Formula
surprise (%) = (actual EPS − expected EPS (consensus)) ÷ |expected EPS| × 100
What high or low means
Actual above expected is positive (a surprise), below it negative (a shock). But beating expectations several quarters in a row (consistency) is more meaningful than a single quarter's surprise.
Revenue can beat while only EPS does (or vice versa). You have to see where the surprise came from (top line or profitability).
If a company deliberately lowers expectations (conservative guidance), even an ordinary actual can be made to look like a "surprise." So more than a single surprise, look at how it was made.
Surprises are often measured on adjusted (Non-GAAP) EPS, which can differ from accounting-standard (GAAP) profit. Check which EPS the surprise was measured on.
Even with a surprise, the price can go the other way. The market often reacts more to the outlook ahead (guidance) than to the reported number.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Earnings and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.