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Imagine that, once every few months, you must release information detailing your current financial standing. The public can see where you’ve spent money, made money, or even how much you’ve saved.

Sounds intimidating, right?

That’s just a different way of describing what earnings season is.

The period is undoubtedly hectic for market participants, with companies finally revealing what’s transpired behind closed doors.

And on top of being hectic, it’s impossible to understate the importance of the period. For those wondering why it’s so critical, let’s look at a few simple reasons that help explain its significance.

Critical Business Updates
 

Earnings reports provide investors with a plethora of information, such as revenues, expenses, and profits, just to provide a few simple examples. It’s critical for investors to analyze this information, as it gives a deeper view into the business and allows them to see any potential red flags.

Take, for example, Palantir (PLTR - Free Report), which recently posted robust results that caused shares to soar post-earnings. Palantir communicated in its release that it’s been enjoying red-hot demand, which has led to the outsized results.

Palantir is a Zacks Rank #1 (Strong Buy), with earnings expectations moving higher across the board.

Image Source: Zacks Investment Research

Highlights Current Economic Trends
 

Earnings season also provides a big-picture view of broader trends within the economy or industries, allowing investors to position themselves appropriately. For example, NVIDIA (NVDA - Free Report) has posted robust Data Center results, which has driven broader optimism among AI-related infrastructure over recent years.  

Analysts have adjusted their EPS expectations for NVIDIA’s current fiscal year well higher over recent months amid the favorable demand backdrop, with the stock also sporting a favorable Zacks Rank #2 (Buy).  NVIDIA shares are up a staggering 80% just over the last year.

Image Source: Zacks Investment Research

Bottom Line
 

While earnings season is undeniably hectic, that’s just the nature of the period. It’s critical for investors to keep a close focus on their stocks during the reporting cycle, as the reports will provide essentially everything needed to know from a short-term perspective.

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