“These are the new leads. These are the Glengarry leads. And to you they're gold, and you don't get them. Why? Because to give them to you would be throwing them away. They're for closers.”
- Blake, Glengarry Glen Ross

More than 2 out of every 3 companies reporting so far this earnings season are beating estimates. Naturally investors want to know which ones. I’ll share a better question -- one they should be asking: Which ones should mean which estimates: earnings or revenues?

Most headlines and most investors focus on earnings as the blood that drives stocks -- but no matter how many surprising ways you can pump up the bottom-line earnings, the oxygen must come from top-line sales.

“The leads are weak.”
- The Machine Levene, Glengarry Glen Ross

Conspicuously, almost the same percentage, about two-thirds of reporting companies, are showing a decline in revenues compared to last quarter’s already depressed levels. Some of this was anticipated on Wall Street, but not this much. The less discussed revenue estimates so far are coming in with a different sort of surprise – a few more “misses” than “beats.”

As usual, however, the reaction has told you more than the news itself about what cards other investors were holding in their hands and how they were positioned. The “tell” can be found in their twitches right after the news, with stocks reporting an earnings beat posting an average of close to a 3% rally in share price the following day.

Stocks with earnings misses so far have only declined a bit more than 1%. This is indicative of a very under-invested group of investors, who dramatically cut back stock exposure at or near the lows.

For some professional money managers, these surprises couldn’t come at a worse time, particularly if they're under-performing benchmarks they were hired to beat. Their historically high piles of cash have spiked those next-day reactions by chasing stocks higher -- even though some of the same “investors” didn't want to buy them lower.

“I subscribe to the law of contrary public opinion... If everyone thinks one thing, then I say, bet the other way.”
- Ricky Roma, Glengarry Glen Ross

So what now? The crowds will always flock around growing earnings or stocks with low price-to-earnings, when each of those numbers can be misleading. At our firm we are much more interested in the far less crowded analysis of sales growth and price–to–sales. Sales receipts are not as easy to make up, and who would want to considering the tax collector’s keen (and growing) interest.

The stand out to the upside on sales surprises this season? Technology, where more than 2 out of 3 companies are showing positive revenue surprises. On the downside, Industrials are running at almost 4 revenue misses to every 1 beat.