Quarterly Results and Stock Performance
Quarterly results of listed companies are one of the most anticipated events for market participants.
The heavyweight names in the index are the ones most tracked by analysts, brokerage houses as well as institutional investors. A couple of weeks before the event, estimates are brought out. It often happens that a stock rallies if the results seem promising. In such cases post-results the stock will fall irrespective of the outcome.
Why is this so?
Well, at the most basic level stocks rise and fall on their demand and supply. On the the result day most large investors would offload their positions if the stock has already run up too much.
In another scenario, poor quarterly results do not indicate a fall. The stock might go up despite delivering poor performance.
The wise thing to do for an investor is to do a thorough study of the company’s financial health. Further, have a look at the previous quarters’ results. The prevalent trend must be upward-biased.
One could also enter a trade with strict stop-loss but a small quantity in cash is still the better option. Buying in cash allows holding the stock for long-term and not be bothered with short-term fluctuations.
To profit well in this result wave avoid large-cap frontline stocks. These are mostly index-heavy names that might move around 1% on either side. Taking into account brokerage and other taxes this doesn’t sound too good a deal.
Quality mid-caps are the way to go. Buy when the results are exceedingly good and there is good growth on year-on-year basis. Then hold it for a week. This is positional trading and less risky than intraday.
The Turnaround Story: This is again a long-term game. In fact, the best gains could be had if held for over a few months.
Genuine turnarounds are rare and one needs careful observation of a company’s fundamentals before taking a decision. On certain occasions company insiders may wish to sell their holding. The company might come out with good numbers pushing up the stock price. At day’s end they only make a great fool of retail investors.