Catalysts for Stock Repricing.

A catalyst is an event which triggers a repricing of a stock. These events occur when new information is announced or confirmed by the company industry or economic data. Ideally these events are anticipated by the analyst as it provides a time horizon for when their investment recommendation will be realized. Catalysts are important for investors as it is only when the stock reprices that they will benefit from their decision to invest or diverse other stock. Also knowing the expected dates or timings of catalysts helps investors to time their action to invest or diverse. The most common catalysts include firstly earnings results. These are particularly important catalysts for analysts as these are near-term events, which will provide detail of a company's current performance and updates to guidance. Also critically the dates of these results is known well in advance. This is useful if an analyst forecasts are above or below consensus as the result will confirm whether the analyst expectations were correct. This chart demonstrates the importance of earnings results as a catalyst. It tracks a share price of veritive a US stock before and after their Q4 2020 results their reported EPS was $1.90, which was significantly above consensus EPS resulting in the share price jumping from $25 to $45 in a short space of time. Results which were above consensus are described as a "beat" and results which are below consensus are described as a "miss". A second type of catalyst is industry or economic data releases similar to earnings results the date of these events are known well in advance the main economic data releases tracked by analysts include GDP data inflation data and employment data which are published regularly typically on a monthly basis by government authorities. Industry data releases are also important but clearly different sectors will track different data points. For example, an Autos analyst will track the announcement dates of monthly new car sales whilst Airline analysts will track the announcement date of monthly air traffic stats. The third type of catalyst is political or regulatory events and the most common of these are government elections budget decisions and interest rate decisions. Although the outcome of these can't always be anticipate, usually the timing of them can. Government elections and budget decisions are particularly important for industries where government spend can have a material impact on the sector. This would include energy, infrastructure, defense, and healthcare. Knowing the time horizon of catalysts helps sell-side analysts communicate their investment idea. For example, some investors such as hedge funds will focus on short-term catalysts, ideally those within the next couple of months. Whilst other investors such as pension funds may be content with longer term catalysts. New return catalysts also usually allow for more conviction from an analyst with the stock recommendation since there is less time for other events or uncertainties to impact on stock prices.