Combining alt data signals for strong earnings predictions
ExtractAlpha
Gain alpha with predictive alternative datasets, including crowdsourced earnings estimates from Estimize.
At ExtractAlpha, we provide a wide variety of alternative data sets with proven predictive power.? Here we focus on three which are explicitly designed to predict earnings and revenue surprises:
TrueBeats: our earnings surprise forecasts based on identifying the best sell side analyst estimates; looking at trends in earnings surprises; and tracking earnings management by companies
The Digital Revenue Signal: a signal which combines consumer web activity across site traffic, search engine volume, and social media activity to predict the likelihood of a revenue surprise
Estimize: a crowdsourced platform for collective earnings intelligence
These three are quite uncorrelated. And when each of these signals is positive (i.e., the smarter analysts are higher than the crowd, earnings trends for a company are positive, and management activity suggests a beat; when web activity suggests a growing digital footprint; and when the crowd has a higher estimate than Wall Street does), we correctly predict the direction of earnings and revenue surprises between 55% and 80% of the time every quarter - we track this on an ongoing basis!
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We recently looked at stocks covered by 10 or more sell side analysts and confirmed that each of the three signals were as predictive as usual for the 1,400 earnings events this year to date, with hit rates between 55% and 74% for each.? But when we combined ALL of them, we found that for stocks where all three signals pointed in the same direction, our hit rate was 94%!? Here are those cases, where thee stock had a positive TrueBeat and top quintile DRS and Estimize Pre-Earnings Signal scores, or a negative TrueBeat and bottom quintile DRS and Estimize scores:
We can see some names (BYND, COUP, BAND) where we have been consistently accurate this year to date.
Here we can see that by combining ExtractAlpha’s many unique sources of earnings prediction, you can consistently beat the street! Contact us if you'd like a free trial to our suite of data products.