Impact of Earning Announcement on Stock Price

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As one of the key strategies that is widely accepted by traders or investors in selecting potential growth stocks, companies with positive earnings are always hunted and added into watchlists.

In this backtesting, KLSE Stockpick studied the impact of quarterly earning announcement (year-on-year) on stock prices in the most recent quarter. The time frames tested are the day just after the announcement date and 1 week after the announcement day respectively.

The table below shows the latest announcement of quarterly results. The growth of the earning as compared to the same quarter last year is listed in third column. Prices (on the announcement date, 1 day after announcement date, 1 week after announcement date) are listed in this table with the changes of prices calculated in percentage.

NameMarksPrice
A908
B8019
C7420
D6032
E77

Quick Observation:
#1 Almost half of the companies with positive earnings growth as compared to the same quarter last year has price hike one week after announcement.


Example: TAWIN that announced 125% of earning growth as compared to same quarter last year had a price change of 53.7% one week after its announcement.

#2 Almost one-third of the companies that announced positive earnings as compared to same quarter last year had price slump one week after announcement date. TECGUAN’s stock price dropped by the most one week after the announcement date.


Example: TECGUAN that announced 109.58% of earning growth as compared to same quarter last year had a price change of -15.4% one week after its announcement.

#3 Almost half of the companies with positive earnings growth as compared to the same quarter last year has price hike 1 day after announcement.


Example: PETRONM that announced 557.55% of earning growth as compared to same quarter last year had a price change of 29.8% one day after its announcement.

#4 Almost one-third of the companies that announced positive earnings as compared to same quarter last year had price slump one day after announcement date. VIS’s stock price dropped by the most one day after the announcement date.


Example: VIS that announced 365.56% of earning growth as compared to same quarter last year had a price change of -20.1% one day after its announcement.

#5 Almost 10% of the companies that announced positive earnings as compared to same quarter last year had price drop one day after announcement date but the price soon reversed its downtrend and the price soon rose above the price on the date of announcement after one week.


Example: VIS that announced 365.56% of earning growth as compared to same quarter last year had a price change of -20.1% one day after its announcement. However, the price change become +2.6% one week after the announcement date.

The reasons why there are different performances of price changes after the company announced profit in the quarter as compared to the same quarter last year can be attributed to several reasons. Two of the possible reasons are listed here:
1. Market manipulation: Profit taking right after good announcement that attracted a significant amount of traders who were subsequently being trapped after the announcement.
2. Below market expectation: Earning growth that is lower than the market expectation or is lower than the earning growth quarter by quarter could drag the stock price down, as investors/ traders perceive that the future growth is limited.

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