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Stock Activity 3 - What Drives Stock Prices?

Extreme earnings surprises can move the stock price up or down considerably. Complete the following table and make observations about the share price movement leading up to and after the announcement of the earnings surprises. Find companies that reported earnings surprises under Research in Yahoo! Finance

Chose October 24th if it is not already selected and find the following companies. To find the change of share prices click on the ticker symbol and then click on the 5 day (5d) chart. It is interactive so you can hover over to see if the stock prices changed from the 24th to the 25th. Try to determine if there’s a trend since the earnings were announced.

Table #1

|Company Name |Symbol |Reported Earnings per share |% Surprise |Change of share prices (compare|

| | | | |day before to day of reported |

| | | | |earnings) |

|Upside surprises |  |  |  |  |

|Ethan Allen |  |  |  |  |

|Nara Bancorp Inc. |  |  |  |  |

|StanCorp Financial |  |  |  |  |

| |  |  |  |  |

|Downside surprises | | | | |

|Hancock Holding Co. |  |  |  |  |

|Metro Bancorp |  |  |  |  |

|Heartland Financial |  |  |  |  |

|  |  |  |  |  |

The best performing stocks are those showing consistency of earnings. Goto and use the "Get Quote" box on the home page. Enter the stock symbol and click the "Get Quote" button. Once here click on “Financials” and then “Annual Reports”. Here you can find Basic EPS (total) for the past five years so that you can fill out the chart below.

Table #2

| |Historical Earnings |

|Symbol |

|Symbol |Price, Year 5 |Price, Year 4 |Price, Year 3 |Price, Year 2 |Price, Year 1 |

|MSFT   |. |. |. |. |. |

|AAPL |. |. |. |. |. |

|XOM   |. |. |. |. |. |

1. Stock prices may move up or down in the short term, but earnings move the share prices in the long run. Repeat the steps in the above activities 3 and 4 to complete the following tables. Compare the share prices and earnings of Yahoo! and Google in the past five years.

Table #4

|Historical Earnings   |

|Symbol |EPS, Year 5 |EPS, Year 4 |EPS, Year 3 |EPS, Year 2 |EPS, Year 1 |

|YHOO |. |. |. |. |. |

|GOOG |. |. |. |. |. |

Table #5

|Historical Share Prices   |

|Symbol |Price, Year 5 |Price, Year 4 |Price, Year 3 |Price, Year 2 |Price, Year 1 |

|YHOO |. |. |. |. |. |

|GOOG |. |. |. |. |. |

2. Analysts (Wall Street Professionals) usually try to estimate next year and 5-year forward earnings and then calculate the price-to-earnings ratio (P/E) to determine whether the stock is fairly priced. Enter a stock symbol on Yahoo! Finance and then click on “Analyst Estimates” from the stock table. Scroll down to Growth Estimate and fill out the chart below.

Table #6

|Earnings Growth |

|Symbol |Next Year |Next  5 Years |Price/Earnings (P/E) Ratio |PEG Ratio |

|MSFT |. |. |. |. |

|AAPL |. |. |. |. |

|XOM |. |. |. |. |

* For example, if the company’s P/E is 50 and the growth rate is also 50, this ratio will be one (50/50 = 1). The higher the ratio, the more expensive the share prices will become.

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