Trading Analysts’ Language and What It Means
Before ever listening calls, traders should become familiar with the language used during the calls. There are several terms that are unique to the analyst call world include the following:
Hockey stick: When companies say their revenues come in like a hockey stick, company officials are not exactly talking about getting hit with a puck. Instead, they’re talking about the shape of a hockey stick. What they mean is that because most of their revenues are booked in the final days of the quarter, revenue charts take on the appearance of a hockey stick.
Most companies, in fact, book revenues this way, because sales incentives are designed to encourage the sales force to close their contracts before the end of a quarter. Salespeople have to meet their quotas, and companies that are planning purchases frequently delay those decisions until near the end of a quarter so they can negotiate the best deals when the salespeople are most desperate to make a deal.
Lumpy: Nope, the CEO isn’t talking about poorly cooked oatmeal whenever he or she says revenues or orders were lumpy. This term means that sales were uneven during the quarter, with some weeks having low order rates and others having high order rates. The key is finding out why sales were lumpy and whether lumpy sales are normal for the company.
Run-rate: Don’t worry, you won’t be asked how fast you can run a race. The run-rate is the way senior management talks about how its current performance can be projected over a period of time. For example, if the current quarter’s revenues show a $1 million monthly run-rate, then you can expect annual revenues to total close to $12 million.
This concept may work for companies with steady earnings but not for companies whose products primarily are seasonal. For example, if a retail company reports a run-rate of $1 million per month during the fourth quarter, which of course includes holiday sales, you won’t expect that performance to be indicative of a 12-month performance. You must be certain that you understand a company’s revenue picture before counting on run-rate numbers.
If you hear other terminology that you don’t understand, write it down so you can research it and understand it the next time you hear it.