We’re seeing many companies announce better-than-expected trading updates and companies that are 'ahead' of broker forecasts. Usually, this means a business has traded well within the specific reporting period. But we are in unique circumstances. In the midst of the crisis when all bets were off, companies put out ridiculously low forecasts and brokers were bearish. That means that when a company reports that it is 'ahead of expectations', the company is trading ahead of these rather low forecasts. Therefore, is it a real beat?
Smart boards know that is far better to underpromise and overdeliver. A company that promises and fails to deliver will see the board lose trust and credibility, and this in turn can affect the share price.
It’s clever to guide low and beat. Games Workshop (GAW) has continuously guided its house broker down over the years only to blow those expectations out of the water, resulting in an earnings upgrade cycle where brokers fail to keep up with events. This propels stocks higher – until expectations become so high that they become unachievable.