As someone who has been one of those members that has posted expectations (and maybe we started that trend somewhere back when Bear started posting “X Company Priors” pre-earnings, which was something new at the time that I personally felt was pretty valuable), I think part of the reason for doing that is because these companies tend to sandbag guidance, and when we put our expectations out there, it’s to cut through that sandbagging and try to form a realistic target as opposed to some silly expectation that “the street” is projecting based off that guidance.
As someone else who models a bit, I find myself agreeing with both Saul and Chris. We know these companies sandbag, so I’ve always found it helpful to think beforehand about what headline numbers would make sense if the underlying business is still intact. Therefore, I don’t want to base my model on whisper or blowout numbers. I want estimates that seem reasonable given what we know about the company. A more detailed post about the thought process can be found here: https://thestocknovice.substack.com/p/using-company-guides-t….
Beyond the headline numbers, I try not to lock myself into too many KPI’s because to Saul’s point they all interplay off each other in assessing the overall business. One metric being off can oftentimes be offset by another outperforming, so I want to stay open minded enough to consider that as I go. The headline numbers are more of a spot check before determining if the rest of the KPI’s balance in a way suggesting the broader trends are intact. I laid out some recent examples here: https://discussion.fool.com/are-we-therefore-basing-our-expectat….
As more modeling has hit the board, I believe we’ve started to see almost reverse sandbagging. What I mean by that is some of the modeling inputs are clearly too high given what we know. For example, this thread contains a model with a “minimum expectation” of a 6% beat from CRWD last fall even though there was little to suggest anything above 4% was reasonable (CRWD came in at exactly 4%): https://discussion.fool.com/crwd-q4-forecast-34987485.aspx?sort=….
Here’s an example where an 8% beat is modeled for SNOW even though we have multiple data points suggesting that number is too high, including a direct quote from management that 5-7% would be considered sizable: https://discussion.fool.com/snowflake-expectations-35063165.aspx…. Sadly, it turns out SNOW’s 2.7% beat has been a painful experience for most of us.
Lastly, here’s a thread modeling “the typical 9% beat” each of the next four quarters for MNDY, a company with just a 10.7% and 8.6% beat under its belt so far: https://discussion.fool.com/mndy-earnings-are-out-35058608.aspx?... Personally, I’m barely comfortable modeling an 8% beat next quarter based on this history, let alone 9% for the next four. Why? Because I’ve now been doing it long enough to know the size of the beats usually shrink as the company scales, not stay the same or even get larger.
Yes, Bear’s expectations posts have been excellent and are a great way to think about what these companies need to do to hold their premiums. However, it only works if the estimates and assumptions are supported by present and/or historical information. I believe dawdaws’ posts lay out the range of outcomes very well. Unfortunately, some others are modeling in beats that simply don’t align with the rest of what we know. Please keep that in mind if you decide to give this a try.