Two Ways Companies Set Themselves Up For Future Success

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  • Investing is a never-ending marathon, not a sprint. Yet Wall Street traders tend to rely heavily on trading opportunities centering on earnings season. Four times a year, a company reports earnings, as well as their guidance for future quarters. These days can see big swings in a company stock price—making it one of the best times to trade.

    But there are other developments the other 89 days of the quarter. And with so much focus on bottom-line earnings, more mundane announcements often don’t cause a rapid price move in shares.

    That’s good news—or bad news—for investors, depending on what’s reported. In the category of good news, however, we know a few things that tend to cause stock prices to rise more often than fall.
    For instance, a company reporting layoffs tends to see its share price rise. Shrinking the headcount at a company can reduce payroll expenses and increase profitability. While it may sound callous, the market responds to the company’s improvement, not the workers who are worse off.

    A company may also avoid earnings season to announce a big acquisition or the development of a complimentary product or service that can gain market share, improve profit margins, or otherwise improve profitability. If these announcements happen quietly, like on a company blog, it may take a long time to get priced in. If announce at a conference, there may be an immediate bounce on hype, that will die off before a longer-term profit can be made.

    In any event, items discussed by a company outside its earnings may have an impact on how they perform down the line. Looking out for announcements like a new product or sizeable layoff can be a good sign that a company’s shares will rise in the coming weeks and months.

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