Read company news like an insider
Professional investors rarely rely on headlines, and you don’t have to either. Public companies publish most of what matters in their own filings, so the advantage goes to readers who know where to look and what the rules require.
Where company information comes from
A press release is the company’s own framing, written to show results in the best light. The filings behind it are legal documents with liability attached, and they are free on EDGAR, the SEC’s online filing database. When a release highlights adjusted or non-GAAP figures, the company must also present the closest standard accounting measure and reconcile the two, so find that reconciliation before quoting the adjusted number.
Regulation FD bars public companies from sharing material nonpublic information with selected analysts or investors unless they make it public at the same time, or promptly when the disclosure was unintentional. That makes filings, earnings releases and earnings calls the main channels for company news, and it means a tip credited to an unnamed insider deserves skepticism.
The filings worth knowing
Each form answers a different question. Among current reports, watch two 8-K items closely: Item 4.01 announces a change of auditor, and Item 4.02 warns that earlier financial statements should no longer be relied on.
- 10-K: the annual report, with audited financial statements, risk factors and management’s discussion and analysis.
- 10-Q: the quarterly report for the first three quarters of the fiscal year, with unaudited financial statements.
- 8-K: a current report on major events such as acquisitions, executive departures or earnings, generally due within four business days.
- Proxy statement: filed on Schedule 14A before shareholder meetings, with executive pay, board nominees and shareholder proposals.
- S-1: the registration statement for an initial public offering, with risk factors, use of proceeds and dilution.
- Schedules 13D and 13G: filed by investors who own more than 5 percent of a class of voting stock, with 13D for those who may seek to influence the company.
- Form 4: reports insiders’ trades in company stock, generally due within two business days.
How to listen to an earnings call
Most calls open with a safe harbor statement warning that forecasts may not come true, then prepared remarks from executives, then questions from analysts. The prepared section is rehearsed, so the Q&A is where you learn what analysts are worried about and how comfortable management is answering.
Guidance, the company’s own forecast for coming periods, often moves the stock more than the results just reported. A company can beat estimates and still fall if it lowers its outlook.
- Compare this quarter’s guidance with last quarter’s, line by line.
- Note metrics that appear for the first time or quietly disappear.
- Listen for questions management deflects or answers with a different topic.
- Read the transcript alongside the slides and the 10-Q when it arrives.
Read the statements in minutes
A few numbers checked across several quarters tell you a lot. Start with revenue growth, and ask whether it is organic or bought through acquisitions. Then look at gross and operating margins, which show whether growth is profitable and whether costs are rising faster than sales.
Compare net income with operating cash flow on the cash flow statement. Profits that rarely turn into cash, or receivables growing much faster than revenue, deserve a closer look. Check debt next: how much is owed, when it comes due and whether operating income comfortably covers the interest. Watch the share count too, since heavy stock-based pay dilutes existing owners.
What insider trading law actually says
Insiders buy and sell their own company’s stock legally all the time and report it on Form 4. Trading becomes illegal insider trading when someone buys or sells while aware of material nonpublic information in breach of a duty to keep it confidential, or tips someone else who trades. The SEC can seek civil penalties of up to three times the profit gained or loss avoided, and federal prosecutors can bring criminal charges.
Rule 10b5-1 lets insiders adopt a trading plan in advance, at a time when they have no inside information, and the plan then trades on a preset schedule or formula. SEC amendments that took effect in 2023 added cooling-off periods before trading under a new plan can begin, and Form 4 now includes a checkbox showing whether a trade was made under such a plan.
On Form 4, transaction code P marks an open-market or private purchase and code S a sale. Many analysts weigh purchases more heavily, because insiders sell for many reasons, such as taxes or diversification, while buying with their own money is harder to explain away.
Spot stock promotion and pump-and-dump schemes
In a pump and dump, promoters hype a thinly traded stock, often a low-priced company quoted over the counter, through social media, group chats, texts or newsletters. When new buyers push the price up, the promoters sell, and the price collapses. Some schemes now begin with a stranger who befriends you online and invites you into an investing group.
Before acting on any tip, search the company on EDGAR, and report suspected fraud to the SEC. These signs call for extra caution.
- Unsolicited tips that promise big, fast gains or urge you to buy now.
- A company with few or no SEC filings, or a recent name change or pivot into a fashionable industry.
- Sudden jumps in price and volume with no news in the company’s filings.
- Fine print disclosing that the promoter was paid, a disclosure federal law requires.
- A trading suspension announced by the SEC.