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The Profit Warning Survival Guide

Lessons learned from 245 small cap disasters

Edward Page Croft, Ben Hobson, Alex Naamani, and Tom Firth

Every stock market investor will have experienced profit warnings. The emotional hit of a crashing stock on bad news can be numbing... what do you do next? We answer this question with clarity through statistics. Never be caught in the headlights again.

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About

About

About the Book

When a stock warns on profits and crashes by 20% what do you do? Hold for recovery? Average down? Bargain Hunt? Sell? Sell Short? There's so much chaos generated from the emotional fallout during these periods that most don't know what to do. We set out to create the definitive study by accumulating the data from 245 small cap profit warnings. Understand the anatomy of a profit warning, the traits of profit warning stocks and what types of behaviour can save you on the downside.

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Finance

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License

Creative Commons Attribution 4.0 International License

Author

About the Authors

Edward Page Croft

Ed Page Croft is the founder and CEO of investment website Stockopedia. Ed is a trained investment manager and programmer who aims to bring the art of smarter investment decision making to a wider audience through the web.

Ben Hobson

Alex Naamani

Alex Naamani is a Financial Analyst at Stockopedia. He has an MSc from the London School of Economics and is a candidate for the CFA Level I exam. As well as contributing to regular site editorial, ebooks and guides - his research contributes to Stockopedia's growing financial databases and product development.

Tom Firth

Contents

Table of Contents

  •  
    • Introduction
    • The Research Project
      • Building a database
    • How to spot a profit warning
      • Profit warning bingo
  • The Anatomy of a Profit Warning
    • The Complete Journey
      • Six months before - the Accelerating Decline
      • Announcement day - the Crash!
      • 18 months later - the Disappointments of Hope
    • What are the odds of recovery after a profit warning?
      • Case Study: MySale plc
    • Do profit warnings bounce ?
    • Do Profit Warnings Come in Threes?
      • Drivers of multiple profit warnings
      • Case Study: Dialight - Multiple Warnings
  • The Traits of Profit Warning Stocks
    • Which Stocks are Most Prone to Profit Warnings?
      • 1. Quality
      • 2. Value
      • 3. Momentum
      • Profit warnings and investment styles
      • Case Study: French Connection - Value Trap
    • Which Styles are Most Likely to Recover ?
      • How profit warnings damage share prices
      • Only Quality shares are worth holding for recovery
    • Case Study: Boohoo.com - quality recovers
    • Which Sectors are Least Prone to Profit Warnings?
  • Other Studies
    • The Psychological Reaction to Profit Warnings
    • Key Insights from Academic Research
      • The immediate impact on prices
      • Price impact surrounding a profit warning
      • Longer term price impact of profit warnings
      • The role of analysts in profit warnings
      • Different reasons for profit warnings
  • Conclusions
  • Appendix
    • The List of Profit Warnings
      • How you can help
    • Further Reading
      • On Profit Warnings
      • On Sentiment

Contributors

About the Contributors

Keelan Cooper

John Kalamaras

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