How do stock analysts estimate the earnings for a publicly traded company? What about costs?
I assume that if one was a careful study of a company, you could determine revenue by surveying consumers and determining how much inventory is being sold, but I don't see how an analyst could gain insight into the costs of a company, especially a small growth company.
For example, a small company might only have a few million in profit, but could easily eliminate this profit by hiring a few dozen more employees. Do analysts have access to insider knowledge from the company board?
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First, you should know that analysts aren't always right. Estimates are called estimates for a reason, they are ESTIMATES! Analysts have access to about the same information as everyone else has. With that being said, their estimates reflect the present value of future earnings (and when I say future, I do not mean one year in the future where just about anything can happen).
For example, take a small company that makes million annually. The company decides to hire some people to drive company growth, and so their SG&A goes to million, and so the company is left with [CO] in profits. Does this mean that the company is worth [CO]? No! In fact, an analyst might see the [CO] in profits as a good thing, because they know with more people, the company may make 0 million in the future! Remember the value of any given company is based on future earnings.
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