Tuesday, September 04, 2007

Top Five Reasons For A Stock Slide
Conventional wisdom dictates that when a company beats Street's earnings estimates for a given quarter, its stock price should rise. But that's not always the case. In many instances, a stock's share price declines after better-than-expected earnings are reported.

Investors need to know that there is a reason for the decline in share price. It just might not be an obvious reason.

1. Major Shareholder Selling(NO XAMPLES HERE)
Some institutional shareholders set a target to sell their stock at a given price or if a certain event transpires. The end result is that the supply of shares available for sale (after the event transpires) usually depresses the share price.

2. Research Notes(Where are the Auditors?)
Sometimes a sell-side analyst will put out a (negative) research note on the company either just before or just after earnings are released. This report (even if it is only slightly negative in nature) can affect the way that firm's clients think, especially those that are more short-term oriented.

3. Not Meeting the Street estimate(obiously not by 300 percent y-o-y,even if rupee appreciate 20pc from present)
Oftentimes, a company will beat the average Street estimate, but fail to meet or beat the whisper number and, as a result, its stock price falls.

Sometimes, there is a fundamental reason for a stock to fall after earnings are announced. For eg, perhaps the company's gross margins have fallen dramatically from last quarter, or

The company may also be spending too much money to pay for a new product launch.(who cares for expensive product launches, well i have two BIG ready-made client for my product)

5. Future Guidance
Most public companies conduct a conference call after earnings are released.
In this call, management may make forecasts or provide other guidance about the future prospects for the company.

Investors need to remember that any guidance that is contradictory to what the investment community is expecting can have a material impact on the price of the stock.

There is always a tangible reason behind the downward movement in a given share price after earnings are released,but it's up to the investor to play the role of detective and to try to determine what that reason is.

Those who are able to decipher the logic behind (and the source of) such market movements may be richly rewarded.
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