question: How can a company present disappointing metrics on their earnings report (revenue decline, low profit, low profitability etc) but still experience a large stock price jump after hours?
comment: If you look at articles about it there is a quote "better than feared". The information in the reports was not unexpected because there is information available before that where you would get the som idea of what would be presented Apple had a pre-announcement on Jan. 2 on URL_0 It resulted in a stock that dropped by 9% to the next day. So the stock price before the presentation included assumptions of what was expected to be in the earnings report but the expectations was worse the the real report so the stock price can increase.
passages: The market, however, may not correctly estimate the implications of earnings surprises when it revises its expectations of future earnings, which will decrease the change in stock prices associated with the change in earnings. In fact, many studies in accounting research have documented that the market takes up to a year to adjust to earnings announcements, a phenomenon known as the post-earnings announcement drift.
   Once a firm's current earnings become known, the information content should be quickly digested by investors and incorporated into the efficient market price. However, it has long been known that this is not exactly what happens. For firms that report good news in quarterly earnings, their abnormal security returns tend to drift upwards for at least 60 days following their earnings announcement. Similarly, firms that report bad news in earnings tend to have their abnormal security returns drift downwards for a similar period. This phenomenon is called post-announcement drift.
   It is fairly easy for a top executive to reduce the price of their company's stock due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative (e.g. pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce share price. (This is again due to information asymmetries, since it is more common for top executives to do everything they can to window dress their company's earnings forecasts).
   Other research has shown that psychological factors may result in "exaggerated" (statistically anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel out'). Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just "noise", e.g. seeing familiar shapes in clouds or ink blots. In the present context this means that a succession of good news items about a company may lead investors to overreact positively, driving the price up. A period of good returns also boosts the investors' self-confidence, reducing their (psychological) risk threshold.
   It has been suggested that potential litigation costs are one reason for announcing bad news early - the company may be at risk of being sued for having known the bad information, not having revealed it, and causing a loss to those who bought stock after the company knew. There are indeed more preannoucements of bad news than of good news, and the number of preannouncements increased in the mid-1990s in the wake of an increased threat of shareholder lawsuits. Firms in industries more subject to litigation are more likely to preannounce. The more analysts cover a stock, the more likely the firm is to preannounce, and good preannouncements average releasing half the good news while bad preannouncements average releasing all of the bad news.
   Stock markets tend to react in the same direction as earnings surprises—positively to positive earnings surprises and negatively to negative earnings surprises—although a significant proportion of earnings surprises result in stock markets reacting in the opposite direction, which may be a reaction to other relevant information released with the earnings announcement or inaccurate measurement of the earnings surprise.
   The spurious trip level represents asset loss due to an internal failure of the safety function. The more financial damage the safety function can cause due to a spurious trip the higher the STL level of the safety function should be. Each company needs to decide for themselves which level of financial loss they can or are willing to take. This actually depends on many different factors including the financial strength of the company, the insurance policy they have, the cost of process shutdown and startup, and so on. All these factors are unique to each company. The table below shows an example of how a company can calibrate its spurious trip levels.
   Executive's access to insider information affecting stock prices can be used in the timing of both the granting of options and sale of equities after the options are exercised. Studies of the timing of option grants to executives have found "a systematic connection" between when the option were granted and corporate disclosures to the public. That is, they found options are more likely to be granted after companies release bad news or just before they "release good news" when company insiders are likely to know the options will be most profitable because the stock price is relatively low. Repricing of stock options also frequently occurs after the release of bad news or just prior to the release of good news.
   Companies listed in BRW Fast Starters list have several things in common, including:
  
  BULLET::::- They have been operating for less than four years
  
  BULLET::::- They have made a turnover of at least A$500,000 in the last fiscal year
  
  BULLET::::- They have higher revenue than the year previous to this
  
  BULLET::::- They have fewer than 200 full-time employees
  
  BULLET::::- They must have more than one main customer
   Scenario: The gap between the news sentiment scores for direction, formula_1, of Company formula_2 and Market formula_3 has moved beyond formula_4. That is, formula_5 ≥ formula_6.
  
  Action: Buy the stock on Company formula_2 and short the future on Market formula_3.
  
  Exit Strategy: When the gap in the news sentiment scores for direction of Company formula_2 and Market formula_3 has disappeared, formula_5 = formula_12, sell the stock on Company formula_2 and go long the future on Market formula_3 to close the positions.
  
  Example 2
   According to hyperbolic discounting, valuations fall relatively rapidly for earlier delay periods (as in, from now to one week), but then fall more slowly for longer delay periods (for instance, more than a few days). For example, in an early study subjects said they would be indifferent between receiving $15 immediately or $30 after 3 months, $60 after 1 year, or $100 after 3 years. These indifferences reflect annual discount rates that declined from 277% to 139% to 63% as delays got longer. This contrasts with exponential discounting, in which valuation falls by a constant factor per unit delay and the discount rate stays the same.
   While the rising moving average indicator is commonly used by investors without realising, there has been significant backtesting on historic stock data to calculate the performance of the rising moving average. Simulations have found that shorter rising averages, within the 3- to 10-day period, are more profitable overall than longer rising averages (e.g. 20 days). These have only been tested on US equity stocks however.
   Note that the sequence of lower lows and lower highs did not begin until August. Then AOL makes a low price that does not pierce the relative low set earlier in the month. Later in the same month, the stock makes a relative high equal to the most recent relative high. In this a technician sees strong indications that the down trend is at least pausing and possibly ending, and would likely stop actively selling the stock at that point.
  
  Section::::Principles.:History tends to repeat itself.
   In one example, Deckers Outdoor (DECK) reported earnings of $2.69 per share after the market closed on Thursday, February 28, 2008 and provided 2008 earnings guidance above the consensus estimates. The reported results were $0.35 per share above the consensus earnings estimate of $2.34 per share. A number of analysts had indicated in the days and weeks leading up to its earnings release that they expected the company to beat estimates and the Earnings Whisper (R) number was $2.70 per share. The stock gained more than $10 during the two weeks heading into the company's earnings release at least in part due to the expectations of the upside surprise, but on Friday, February 29, 2008, shares of Deckers Outdoor traded down approximately $10 after missing the whisper number by a penny.
   The prior neglected stocks generate more return subsequently over a period of time. While the prior best performers consequently underperform the index.
  
  Section::::Technical anomalies.
  
  Technical anomalies can be observed when using technical analysis, which tries to predict future movements in financial markets using previous prices and relevant information. For efficient or partially efficient markets the technical analysis should not earn higher returns opposed to a conventional buy-and-hold investing strategy.
  
  Section::::Technical anomalies.:Moving Averages.
   For any valuation technique, it is important to look at a range of forecast values. For example, if the company being valued has been growing earnings between 5 and 10% each year for the last 5 years, but believes that it will grow 15 –20% this year, a more conservative growth rate of 10–15% would be appropriate in valuations. Another example would be for a company that has been going through restructuring. It may have been growing earnings at 10–15% over the past several quarters or years because of cost cutting, but their sales growth could be only 0–5%. This would signal that their earnings growth will probably slow when the cost cutting has fully taken effect. Therefore, forecasting an earnings growth closer to the 0–5% rate would be more appropriate rather than the 15–20%. Nonetheless, the growth rate method of valuations relies heavily on gut feel to make a forecast. This is why analysts often make inaccurate forecasts, and also why familiarity with a company is essential before making a forecast.
   Effectively, the institutional investor's large order has given an option to the professional investor. Institutional investors don't like this, because either the stock price rises to $9.99 and comes back down, without them having the opportunity to sell, or the stock price rises to $10.00 and keeps going up, meaning the institutional investor could have sold at a higher price.
  
  Section::::See also.
  
  BULLET::::- Market impact cost – the transaction costs associated with price movements from the market impact
  
  BULLET::::- Slippage (finance)
  
  BULLET::::- Insider Trading
  
  Section::::External links.
  
  BULLET::::- Market impact and trading profile of large trading orders in stock markets
   Another example of the impact of volume on the accuracy of market capitalization is when a company has little or no trading activity and the market price is simply the price at which the most recent trade took place, which could be days or weeks ago. This occurs when there are no buyers willing to purchase the securities at the price being offered by the sellers and there are no sellers willing to sell at the price the buyers are willing to pay. While this is rare when the company is traded on a major stock exchange, it is not uncommon when shares are traded over-the-counter (OTC). Since individual buyers and sellers need to incorporate news about the company into their purchasing decisions, a security with an imbalance of buyers or sellers may not feel the full effect of recent news.
   Post-earnings-announcement drift
  
  In financial economics and accounting research, post–earnings-announcement drift, or PEAD (also named the SUE effect) is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (even several months) following an earnings announcement.
   Assuming that markets are efficient, the market price of a stock will reflect these evaluations, but with the increase in shareholder equity 'management' and prevalence of barter transactions involving equity, this assumption may be stretched.
   Much like other technical indicators, The Growth X is often disputed and depends on a company's ability to continually grow earnings. If investors bid up the market value of the company faster than the earnings growth rate, then The Growth X will not form, and the relative valuation will stay flat or continue to rise. Eventually relative valuations fall as growth prospects diminish, but this can often occur quickly and cause a step function down in valuation multiples.
   Underwriters and investors and corporations going for an initial public offering (IPO), issuers, are interested in their market value. There is always tension that results since the underwriters want to keep the price low while the companies want a high IPO price.
   There are three thresholds, which represent different levels of decline in the DJIA in terms of points. These thresholds are set at the beginning of each quarter to establish a specific point value. For example, in the second quarter of 2011, Threshold 1 was a drop of 1200 points, Threshold 2 was 2400 points, and Threshold 3 was 3600 points.
   The basic strategy of news playing is to buy a stock which has just announced good news, or short sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits (or losses). Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match the tone of the news itself. This is because rumors or estimates of the event (like those issued by market and industry analysts) will already have been circulated before the official release, causing prices to move in anticipation. The price movement caused by the official news will therefore be determined by how good the news is relative to the market's expectations, not how good it is in absolute terms.
   BULLET::::- Outcome Availability – availability of positive and negative investment outcomes, and
  
  BULLET::::- Risk Availability – availability of financial risk.
  
  On days of substantial stock market moves, abnormal stock price reactions to upgrades are weaker, than those to downgrades. These availability effects are still significant even after controlling for event-specific and company-specific factors.
  
presuppositions: Bad earnings mean stock will go down. If a company has disappointing metrics, its stock price should be lower.
corrections: Earnings could be better than feared which makes it go up instead.  Stock prices include assumptions of expected earnings report, so if the real report is better than expected, the price can increase.
raw_presuppositions: Bad earnings mean stock will go down. If a company has disappointing metrics, its stock price should be lower.
raw_corrections: Earnings could be better than feared which makes it go up instead.  Stock prices include assumptions of expected earnings report, so if the real report is better than expected, the price can increase.