Company Announcements: Are They Good News Or Bad News For Stock Prices?
So… you’ve decided on venturing in the world of investing and have locked in your first few trades, what do you do now?
I’m sure most of us would have made the initial mistake of tracking financial news and panicking over the slightest changes in good/bad news and its subsequent effect on stock prices.
Here’s a tip for beginners out there – Stop needlessly panicking. Prices will change indefinitely – that’s just the way global, interconnected markets work.
That said, as a junior to semi-proficient investor, you should preferably build up a good habit of frequently monitoring announcements from companies you have invested in, followed by their competitors.
TL;DR: Updates and Announcements you should watch out for
Here are some of the more common news updates that you might have come across
- Departure of CEO or Senior Executive
- Merger & Acquisitions
- Employee Retrenchment
- Allegations of Fraud or Negligence
Obviously, all of the above have a corresponding negative and positive impact on stock prices and future dividend payouts. However, keep in mind that nothing is an absolute in financial markets.
1. Firing or Voluntary Leave of CEO Or Senior Company Executive
The decision to dismiss someone with a huge responsibility in the business is usually seen as a bold move (or last ditch effort depending on your point of view) by a company’s board of directors.
These sorts of announcements could signify to shareholders or the general public that there is incoming management changes which may possibly improve company performance.
That said, it is still important to note that the termination or voluntary dismissal of a top level executive could also imply deep seated issues with the company’s existing structure.
Think back to Tesla’s Sep 18 stock price decline when 2 senior executives (1 Chief Accounting Officer & 1 Chief People Officer) left shortly after joining the company.
2. Merger and Acquisition
With the acquiring of a competitor, the competitor’s stock prices tends to increase (albeit temporarily). This is due to the acquirer having to pay a premium the acquisition of said competitor.
On the flip side, the acquirer’s stock prices usually decreases. This could be due to a variety of reasons but the most common consensus revolves around the obligation of having to pay more than the target company’s worth in form of a premium.
Moreover, the subsequent uncertainty revolving around the newly merged company increases as investors cast doubts on the ability for both companies to integrate efficiently.
3. Employee Retrenchment
The premise of a significant employee retrenchment in 1 single time period is usually seen as a bad omen in financial markets. Think about recession periods or the possibility of a company being sold off a massive loss.
Such actions unsurprisingly work towards reducing consumer trust in the future of a company, potentially resulting in a less valuable stock.
Arguably, the context of a layoff may differ in a slowing economy. Laying off employees is still one of the fastest ways for a company to reduce its expenses. Coupled with a slowing economy, this could very well be one of the strategies to adapt to the current economic situation. In such instances, stock prices tend to do better.
4. Allegations of Fraud or Negligence
Any allegations of fraud or negligence will never be favourable to any company. Unsurprisingly, such announcements reduce investors’ confidence in the accountability of the said company.
Particularly, insider trading and fraud have huge negative impact on financial markets. To make things worse, these illegal activities often result in highly unusual price movements which can lead to a trading halt. Investors currently invested in such stocks will tend find their risks fluctuating to unusually high levels.