Why do some companies’ share prices fall even when they report better than expected results?

31/08/2018 | #earningsreport | 369 views

There are two main reasons. One is a phenomenon known as ‘travel and arrive’ – where investors buy a company’s shares ahead of its results because they believe the company might do well (perhaps they’ve spoken to customers and heard good things, or a supplier’s said that demand for its products is rising). This demand for the shares could cause them to rise.

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Once the results do arrive, investors may want to lock in their positive returns by selling their shares, hoping other investors want to buy based on the company’s good report – but if there are more sellers than buyers, that could lead the stock price to fall.

Another big reason is a company’s outlook. If a company exceeds expectations but warns that its future sales or profit won’t be as high as investors expect (like Nvidia), then investors may well sell – the company’s unlikely to be as valuable as they’d previously thought, resulting in a falling stock price.

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