Every day, the newspapers report news involving listed companies. Most of the news will have come from company press releases or briefings by PR companies, so whichever newspaper you read you will get the same stories.
The stories could be about any number of corporate developments:
In general, large companies are reported much more widely than small companies. For small company news, your best bets are the specialist magazines and newsletters.
As you read business news, two questions should be going through your mind:
The first question is whether the news is good or bad. This is not always as obvious as it seems.
When the fashion retailer New Look reported on 17th July 2000 that like-for-like sales were down 3.9% over the past 15 weeks, you would probably interpret that as bad news - and you'd probably be right.
But remember that these things are comparative. If, over the same period, other fashion retailers had reported a drop of 12% in sales, the performance of New Look would actually have been quite good. What matters is relative performance, not absolute performance.
On the same day, The Times reported that Diageo was selling its Pillsbury food business for $10.5b, with the loss of hundreds of jobs. Was that good or bad for Diageo shareholders?
The directors explained the changes as part of a refocusing of Diageo towards its drinks brands, and were very positive about the future. But then they would be. Can you trust their judgement? And is their strategy of focusing on drinks brands the right one?
There are no easy answers. Unless you have an intimate knowledge of an industry, you aren't in a good position to evaluate business news. What you can do is gather in the opinions of all those who should be better informed.
In the Diageo case, The Times had a commentary right above the main news article in which it described the offloading of Pillsbury as 'sensible streamlining'. So the Times thought the disposal was good news.
Just because a company releases good news, it doesn't mean its share price will rise, and just because it releases bad news doesn't mean the share price will fall. It all depends on what the market was expecting.
A good example was the trading statement of Pizza Express reported on 5th September. The restaurant group reported a 12 per cent rise in pre-tax profit and strong like-for-like sales growth. The chairman was confident about the future, predicted that 30 new outlets would be opened in the coming year, and announced plans for a franchise network in Spain.
Positive news all round then? Not good enough for the market which had been expecting better. The shares dropped 7p.
Company news should not, therefore, be taken at face value. You need to always think comparatively, and always find out what the market was expecting.
Recommend ReadingBook offers!
