Ask Colin

Should one buy before or after a profit report?

The detailed question was:

I was hoping to ask your view in relation to buying a stock that will be releasing its financial results in the coming weeks. I can see pros and cons to both waiting and not waiting until after the results are released, and would appreciate your point of view.

If the result is better than the market expects, then to buy after the announcement means you will pay more, so it would be best to buy beforehand. However, that means you have to back your judgement and therefore take greater risk, but you will be buying at a lower price.

 

If the result is worse than the market expects, then the opposite applies.

 

 So, there is no easy answer. It will depend on how much confidence you have in your judgement. You might also take into account the company’s history as far as announcement surprises are concerned. Many companies like to under-promise, so they always surprise a bit on the upside

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