11 Catalysts that can move the share price:
While investing in the stock market, a number of times you may find that a new announcement regarding any company drastically spikes its share price within a few months. These are called catalysts.
The catalysts are the certain special events (actual or potential) that are capable to push the share price of a company upwards or downwards in a short (accelerated) time period.
These catalysts may ‘not’ always push the share price upwards. However, most of the times, these catalysts allow the investors to get a fast profit by holding the share for a shorter period of time.
Moreover, the outcomes of these catalysts are comparatively easier to predict. Depending on the catalyst type, you can analyze whether the share price will go up or down.
In this post, we are going to discuss top 11 must-know catalysts that can move the share price of a company.
DISCLAIMER: Although most of the times these catalysts can move the share price of the company, however, there is no guarantee that the things will always work out as expected. Sometimes these catalysts may not be able to move the share price as much as logically predicted.
11 Must-Know Catalysts That Can Move The Share Price:
1. Earnings release:
A strong earnings report (which is above than what expected by the market experts) can be really good for the stock. The public takes this report enthusiastically and hence, the company’s share price is pushed higher. Further, this also raises the ‘bar’ for the future earning potentials of the company.
2. Mergers & Acquisitions
A merger occurs when two separate entities combine together to form a new joint organization. You can consider merger as a corporate ‘marriage’. Whereas, when a company takes over another company and establishes itself as a new owner, then this action is called acquisition.
Mergers and acquisitions can push the share prices of the ‘acquiring’ and the ‘target’ company. However, here do take care which company will get more benefits after the merger.
Read more here: What are Mergers and Acquisitions (M&A)?
3. Stock buybacks (Repurchases)
A share buyback is a situation when a company buys its own share back. This means that the company will purchase the outstanding shares and hence will reduce the total number of shares available in the market.
As stock buyback increases the value of the remaining shares. Hence, it increases the demand for the stocks of that company and pushes its share price in the upward direction.
4. Significant dividend announcement
A significant dividend announcement by the board of directors means that every shareholder will get a greater dividend per share. This will increase the demand for the stock and hence a rise in the share price can be expected.
However, in such scenarios, many times the share prices increase till the ex-dividend date of the company and might move a little downwards after the record date.
5. Product launches
If a company announces the launch of a new product or the opening of a new plant which can help to generate more revenue in future, then it will be taken positively by the public.
6. Stock splits
In a stock split, the company splits the share price into different parts. For example, in a stock split of 1:1, stock price splits into two parts.In a stock split of 1:5, stock splits into 5 parts. The fundamentals of a company remain same in a stock split. There is neither increase or decrease in the share capital or reserve in a stock split.
Stock splits make the company more affordable for an average investor. Further, it also increases the liquidity of the stock and its trading volume.
The bonus shares are the additional shares given to the shareholders by the company. This is a method of rewarding the shareholders.
Although, there will be no noticeable difference in the wealth of shareholder as the share price of the company will fall in the same proportion after bonus date. However, the announcement of the bonus shares is considered a positive news as it will increase the dividends that you’ll receive in future (as you will hold more stocks which will be added as the bonus in future).
That’s why bonus announced by the company is taken eagerly by the crowd resulting in an increase in the share price.
What are spinoffs? – A company may have several products or services. When a larger company ‘Spins off” a division and split the company up in two, then it is called spin-offs. Shareholders receive stocks from both companies.
Here, the independent companies perform better as the management can focus more on the individual company. In addition, after spinoffs, there’s a better stock valuation for each company sedately as opposed to one big entity. The announcement of spinoffs will easily move the share price of the company.
Liquidation is a bad news as it means that the business went bankrupt and will be terminated. While liquidation, the company sells everything it owns.
The shareholders who are owning this company might want to get rid of it or start selling their shares to some other people. Hence, liquidation announcement acts as catalysts that can move the share price in the negative direction.
10. Lawsuits and investigations
Many public companies are sometimes investigated. There can be various outcomes while dealing with lawsuits and investigations. The company share price can move in different directions once the public finds out about it.
In general, during the investigation time, the share price of that company moves in the downward direction. It declines further if the company is found guilty. However, if the company is found ‘not guilty’, then its share price may jump in the upward direction.
11. Addition to the index
When a company is added to the index (such as nifty or Sensex), then the index funds have to purchase that company. This increases demand and pushes the share price.
Bonus: Few other catalysts that can move the share price are ‘change in management’, takeovers, a spike in interest rates, political reasons, global issues etc.
What can you do with this information?
Usually, most of these catalysts are ‘unpredictable in nature‘. It’s really difficult to predict when the company will announce next bonus or a significant dividend (although few of these catalysts can be predicted by the experts, however, the exact news is known only after the announcement).
That’s why don’t make an entire investing strategy just based on this info. Take these catalysts into account and be ready for it.
In addition, you also need to follow the news regarding these catalysts in a ‘smart’ way. There are a lot of fake news or rumors in the market. Filter out the correct news before processing. You can use google alerts to get the relevant news.
There are a number of catalysts in the market that can accelerate the share price. These are the bonus information if known to the investors, can help to get profit within a short time period.
Here are the top 11 Catalysts that can move the share price which we studied today.
- Earning release
- Mergers & Acquisitions
- Stock buybacks (Repurchases)
- Significant dividend announcement
- Product launches
- Stock splits
- Lawsuits and investigations
- Addition to index
Also read: Why do stock prices fluctuate?
That’s all. I hope this post is useful to you.
Feel free to leave a comment below if you have any doubt or want to ask any questions. I’ll be happy to help you out. #HappyInvesting.
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Hi, I am Kritesh, an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting