Spain’s Abengoa ( ABGB , ABY ) began insolvency proceedings today after a potential investor said it would not inject fresh capital into the company, cutting its share price in half. While you can use analysts or history as the basis for estimating expected earnings, the market expectations process is a more nuanced one and more difficult to model. Pre-announcement drift: There is a mild drift in stock prices before earnings reports that is consistent with the eventual surprise: prices move up before positive surprises and down before negative surprises. On the announcement, the price effect reflects the magnitude and the direction of the surprise, with stock prices going up about 3%, on average, in reaction to the most positive surprises. The 3Q15 PATMI remained weak and was below our and the Bloomberg consensus numbers.
This suggests that you are much more likely to get a positive surprise with a value stock than with a growth stock, indicating perhaps that markets tend to be overly optimistic in their expectations for growth companies. Management guided that its operational rigs would rise to 21 units by year-end, with a total of 28 delivered units to be delivered for 2015.
Earnings announcements made by smaller firms seem to have a larger impact on stock prices on the announcement date and prices are more likely to drift after the announcement. As with analyst reports, there seems to be evidence that the market reaction to earnings reports is a function not only of the earnings number reported but also the accompanying management commentary. All investors should consult a qualified professional before trading any stock or Investors should take their own decisions.
There is some evidence that the market reaction to earnings reports is greater at firms with high institutional ownership, with one rationale being offered that institutional investors tend to be more short term in their focus and thus more likely to respond to quarterly earnings reports. The surprise effect (which was, by the way, also a major input to the original Value Line ranking system devised in the early 1960s by my other co-worker, the legendary Sam Eisenstadt) took MUCH longer to work its way fully into the market.
While picking less volatile stocks, you should try and forecast the future of the companies and get into the stock if you find it to be convincing. By considering the above mentioned factors, I am sure that you will always be a profitable trader/investor in the market. Investor here do their the share market different companies raise their required money for the running of their companies. Faber said that if the stock market continues to drop further, the Federal Reserve may have to implement another round of quantitative easing.