Guidance is mostly focused on giving direction on which investments are best for an investor’s situation. The advice most often focuses on risk tolerance and portfolio allocation. An aid to financial analysts and the stock market in valuing the corporation, and helps prevent overvaluation, guidance can also refer to the information a company provides as an indication or estimate of its future earnings. Goals for providing guidance include underplaying expectations to avoid negative surprises, serving as a counterpoint to stock analysts' consensus estimates, reducing stock price volatility when actual results are announced, and potentially shifting investor focus from short-term results to long-term perspectives.

  • public companies provide guidance as part of their quarterly reports and/or earnings releases
  • guidance helps analysts build their own predictive operational and price models
  • changes in guidance (from quarter to quarter) may be even more helpful than the guidance numbers themselves
    • can tell you if a company is moving in the right direction or not
  • guidance can significantly impact stock prices
    • even if a company's quarterly results are good, lowering guidance can cause a stock price to fall