Trading Tips

Two Ways Companies Set Themselves Up For Future Success

June 19, 2019
Trading Tips
Two Ways Companies Set Themselves Up For Future Success
Chapters
Trading Tips
Two Ways Companies Set Themselves Up For Future Success
Jun 19, 2019
Trading Tips
A company may also avoid earnings season to announce a big acquisition or the development of a complementary product or service that can gain market share, improve profit margins, or otherwise improve profitability.
Show Notes

Investing is a never-ending marathon, not a sprint. Yet Wall Street traders tend to rely heavily on trading opportunities centering on earnings season. Four times a year, a company reports earnings, as well as their guidance for future quarters. These days can see big swings in a company stock price—making it one of the best times to trade.

But there are other developments the other 89 days of the quarter. And with so much focus on bottom-line earnings, more mundane announcements often don’t cause a rapid price move in shares.

That’s good news—or bad news—for investors, depending on what’s reported. In the category of good news, however, we know a few things that tend to cause stock prices to rise more often than fall.

For instance, a company reporting layoffs tends to see its share price rise. Shrinking the headcount at a company can reduce payroll expenses and increase profitability. While it may sound callous, the market responds to the company’s improvement, not the workers who are worse off.

A company may also avoid earnings season to announce a big acquisition or the development of a complementary product or service that can gain market share, improve profit margins, or otherwise improve profitability. If these announcements happen quietly, like on a company blog, it may take a long time to get priced in. If announce at a conference, there may be an immediate bounce on hype, that will die off before a longer-term profit can be made.

In any event, items discussed by a company outside its earnings may have an impact on how they perform down the line. Looking out for announcements like a new product or sizeable layoff can be a good sign that a company’s shares will rise in the coming weeks and months.

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