Trading Company Results – Why and How

by | May 18, 2017

Despite what the word implies, volatility in stock markets is not always a bad thing for investors. Investing in a volatile instrument (stock, commodity etc) can prove to be wildly profitable.

There are many different styles of investing and the goals of the individual will dictate exactly how they choose to trade. Many in the market are looking at a longer term goal, seeking to invest in companies that will perform well into the future. However what we are going to talk about is the short term – particularly how you can make a fast profit (or loss if you are not careful) from company announcements.

Results for a certain quarter of the year, or full year figures, will give a strong indication of how a company is performing. Figures usually include profits and revenues for a particular segment of time. The most crucial aspect of this is how the firm’s share price reacts. A share price is a reflection of how investors feel about a particular stock, and it can change dramatically when a company releases their latest financial results.

The crucial thing is to conduct a little research into the company before buying or selling. Read some posts, follow the latest news and see what the invstr community thinks of it’s prospects. Usually, analysts put forward expectations of how good or bad results will be based on research, and you can use this to help you decide whether to buy or sell. Ultimately though, the decision must come down to you – what do you think will happen? Will you follow the trend or go against the crowd?

The best time to trade on company results is to buy or sell shares in a company before the results come out. This is because you want to get in there first before the market opens. The biggest falls or gains in the firms share price will usually come soon after the stock starts trading. Once the stock has hit a low or a high, your opportunity to make money usually decreases, because volatility (big falls or gains in the price) is likely to relax from then on. On many occasions, companies will release poor or great results causing a major change to the share price, but then by the next day the price will have returned to normal, meaning the fall or rise in price was a temporary ‘blip’ – you want to invest just before that ‘blip’ comes to take advantage of it.

Let’s take Paypal for example. On Paypal’s calendar tab in invstr, you may view when the company is reporting results:

So we can see here that Q1 results for Paypal are expected on the 26th of April. PayPal is a US based company. Some times companies announce results after the US markets close, sometimes before they open, so you must check to confirm. You can do this by reading related news and posts on the news and invstr (social) feeds.

How were the results?

Paypal had a great first quarter of the year, showing strong growth across the board. More users, more profits.

Immediately after the news broke that PayPal had a great first quarter, the price of the stock jumped 6%! 

If you had bought PayPal before this news broke, you would have made a tidy profit, because you bought it before the price jumped and suddenly your investment would be worth more. If you had then closed the position you would have walked away with a win.

Lets look at the complete opposite – weak results and big losses for a company on results day. Macy’s is a department store chain which has struggled throughout 2017 due in part to more customers buying goods online as opposed to in stores. We can see that on May 11th 2017 they reported Q1 results.

Sadly for Macy’s (and anyone who had bought the stock), the results were poor and the stock price plummeted:

We can see on the chart above how the price fell dramatically on and shortly after results day. The correct strategy here would have been to sell Macy’s before the market opened, then close the position when the price had fallen significantly. An option after this would have been to buy Macy’s after the price had hit a low, so that when the price returned to normality after its big loss, you could make another profit from it’s recovery.

In simple terms, if you think a company is going to report good results, you want to buy that stock before the market opens on results day. If you think a company will report bad results, you want to do the opposite and sell it before the market opens on results day. In order to maximize your profit on these volatile days, you want to make sure to close the position and take your profit at it’s peak (either when the price has dropped a lot or it has risen a lot).

Good luck and happy invsting!

ALL RIGHTS RESERVED © INVSTR LTD. 2017

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order. Brokerage services, including fractional trading of US securities, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here. Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.

Download on the App Store           Download on Google Play

ALL RIGHTS RESERVED © INVSTR LTD. 2017

Risk Disclosure:

Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order. Brokerage services, including fractional trading of US securities, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here. Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.

Share This