Stock Trading Communication & Stakeholder Relations 3 — Questions and Answers
Question 1: What does 'street consensus' refer to in the context of investor communications?
- The average of analyst earnings estimates for a company (Correct answer)
- The majority opinion among retail investors on social media
- The SEC's official earnings benchmark for a company
- The stock exchange's recommended trading range
Correct answer: The average of analyst earnings estimates for a company
Street consensus refers to the aggregate of Wall Street analysts' earnings per share (EPS) and revenue estimates, which companies are measured against when reporting results.
Question 2: A company 'beats' earnings but its stock drops sharply. What is the most likely explanation related to investor communications?
- Management's forward guidance disappointed expectations despite the earnings beat (Correct answer)
- The earnings were fraudulent and investors detected it
- The SEC halted trading on the stock
- Short sellers covered their positions
Correct answer: Management's forward guidance disappointed expectations despite the earnings beat
Stocks often fall after earnings beats if management's outlook or guidance for future quarters is below what investors anticipated.
Question 3: Which of the following is an example of a non-GAAP financial metric that companies frequently communicate to investors?
- Adjusted EBITDA (Correct answer)
- Net income per GAAP
- Total assets
- Accounts receivable turnover
Correct answer: Adjusted EBITDA
Adjusted EBITDA is a non-GAAP metric that excludes items like depreciation, amortization, and one-time charges to present an alternative view of operating performance.
Question 4: What is the role of a 'sell-side analyst' in the context of stakeholder communications?
- They research companies and publish reports with ratings and price targets for investor clients of their brokerage (Correct answer)
- They manage buy orders for institutional portfolio managers
- They advise company management on investor relations strategy
- They audit financial statements on behalf of the SEC
Correct answer: They research companies and publish reports with ratings and price targets for investor clients of their brokerage
Sell-side analysts work for investment banks and brokerages, producing research reports and stock recommendations for their institutional and retail investor clients.
Question 5: What is a 'road show' in the context of stock trading and investor relations?
- A series of presentations by company management to institutional investors, typically before an IPO or secondary offering (Correct answer)
- A tour of company facilities for retail shareholders
- An SEC-mandated annual meeting with regulators
- A marketing campaign for a company's products
Correct answer: A series of presentations by company management to institutional investors, typically before an IPO or secondary offering
A road show is a marketing effort by company executives who present to institutional investors to generate interest before capital raises such as IPOs.
Question 6: Under SEC rules, which form must insiders file within two business days of buying or selling company stock?
- Form 4 (Correct answer)
- Form 3
- Form 144
- Form 10-Q
Correct answer: Form 4
Form 4 must be filed within two business days of an insider transaction and discloses changes in the beneficial ownership of company securities.
Question 7: A company's CFO uses social media to announce quarterly earnings results before filing with the SEC. What rule governs whether this is permissible?
- The SEC's 2013 guidance stating social media channels are acceptable if investors are informed in advance that the company will use them (Correct answer)
- Regulation T, which restricts broker credit
- The Sarbanes-Oxley Act, which prohibits all social media disclosures
- FINRA Rule 2210, which restricts institutional communications
Correct answer: The SEC's 2013 guidance stating social media channels are acceptable if investors are informed in advance that the company will use them
The SEC's 2013 Netflix guidance clarified that social media can satisfy Regulation FD disclosure requirements if investors are notified in advance which channels the company uses.
Stock Trading Communication & Stakeholder Relations 3
What does 'street consensus' refer to in the context of investor communications?