Question

Stockbridge Sprockets Inc. earned $2.25 per share last quarter, and $2.50 in the last quarter of 2019. Because of declining demand for sprockets, analysts’ consensus estimates for the company for this quarter are $1.90 per share. If the company’s actual earnings announcement is $2.00 per share, absent any other news, what could the price of the stock be expected to do following the announcement?

a) Go up

b) Go down

c) Go either up or down

d) Remain unchanged

e)There is nothing in the data provided that would cause the stock price to move

Answer 1

Answer-

The Corret Option is a. Go up.

The reason for the stock going up is that the earnings announcement 0f $ 2.00 per share for this quarter is higher than the analysts estimate of earnings of $ 1.90 per share.

As the earrnings have beaten the analysts estimate therefore the stock price will go up.

The other options are incorret.

Option b is Go down is incorrect as the earnings are higher than expected.
Option c is not possible as stock has to move one way, either up or down.
Oprion d is incorrect as the price will remain unhanged if the actual return is equal to analysts estimate.
Option e is incorrect.