Share price of a company moves up and down everyday for many different reasons.
During earnings announcement, they are especially more volatile because investors are pricing in adjustment to the share price based on what was announced in the earnings. Earnings are a significant underlying determinant factor that can move the share price of a company very quickly, either for the good or for the worse.
In general, whenever a company announces earnings which was not favorable, and I defined not favorable at this point by lower year on year comparison, the share price would usually dived southwards. On the similar end, when a company announces favorable earnings results, the share price would usually get boosted the next trading day, signaling positive sentiments and outlook from investors.
This is not always the case though however.
The Singapore market recently is behaving like one which baffled many new investors.
Take UMS for example, a semi-conductor company which is enjoying its upcycle period in these few years. The earnings result was very favorable and more than doubled the previous year earnings. The company even managed to reward shareholders by issuing a 1 for 4 bonus on top of the usual interim 1 cent dividend. Upon the announcement, the share price dived from a high of $1.17 to the current period of around $1.02, almost a 15% decline in share price.
The same goes for another semi-con company, AEM.
Another example recently in the market is Elec & Eltek. The company issued a profit guidance announcing that the company would make exceptional earnings this year. The share price went up for a few months and upon the earnings result, the company announces a 500% increase in earnings per share. Despite the favorable result, the share price dipped the following day by about 4-5%, signaling the market’s disappointment perhaps by the lack of the interim dividend, which have mostly been priced in the expectations.
I think this is what makes investing an interesting and challenging experience.
The fact that market reacts mostly dependant upon priced in expectations signals that it is very difficult to predict movement in the short term. In the longer term, they would retrace back to the fundamentals of the company and share price and valuations would follow eventually.
This is probably the reason why value investing for longer term is such difficult to follow because you really need to have patience and by that it means having to stomach the up and down of market sentiments almost on a daily basis.
On one hand, you need to ascertain the outlook fundamental of the business and on the other hand you need to evaluate the current valuation of the company that you paid for. It needs to go both hand in hand to capture the most reward and they are often difficult to find which makes an exceptional investor having to go a step ahead of the others before others find the gem.
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