It has been a rocky period for the stock market. Investors are more cautious than ever with the companies that they chose to invest in hopes to keep their investments safe. They are more likely than ever to conduct their due diligence on a company before investing. Companies are aware of this, so there have been an increased amount of desperate companies putting lipstick on their pig.

All hope is not lost. One should make sure to thoroughly read any earnings reports on potential companies before making the final decision. Investopedia notes that there are common signs to identify red flags hidden in earnings report.

5 Red Flags in an Earnings Report:

1. Friday News Release: Some companies will look to post their earnings on a day when they suspected there would be the least attention. Those days would usually follow on a Friday afternoon or after hours, ideally before a holiday weekend. This would force their investor’s reactions to at least be delayed and possibly changed over the span of the weekend.
2. Obscure Communication: If companies fill their reports with vague wording, this may be a warning sign. Investopedia notes a few words/phrases that may reveal a coveted meaning: challenging, “pressured,” “slipping”, “stressed”, and “sees a great deal of pricing pressure.” Also be sure to look thoroughly read the bottom of a earnings report as it is highly likely that the company has hidden crucial information there.
3. Exaggerating the Good: It’s understandable that companies want to share good news with their shareholders. However, sometimes they can cross that fine line between sharing and shoving. If you notice print highlighted in bold or in the headlines, make sure you still take the time to read between the lines.
4. A Rise in Stock Buybacks: Buybacks do serve as good PR for a company, but you should pay close attention to the timing of their actions. If they do so around a bad earnings report, it may just be an attempt to distract its investors.
5. Countering the Bad News with Good: This is a common trick many companies will use to entice investors after bad news has been reported on their earnings. They will attempt to advertise a potential merger, large customer account, product launch, or experienced executive staff additions.

*Updated Bonus: Check Jermaine’s addition in the comment section for another great sign of a hyped earnings report.

While some companies may attempt to pull out all the stops to cover up bad earnings reports, investors can still get the information that they seek upon paying close attention to the reports. With these tips in mind, you’re better prepared. With knowledge comes power.