Ben Todd | Jun 2, 2017 | 1
10 Signs Your Stocks Might Decline
We cannot predict the future, but we can look at what we know and make a judgment upon what may happen. If you see a group of men walking behind you in a dark alleyway, then you may figure you are about to be mugged. If you see that they have just come from bible study, then they may figure you are going to be okay. There is no way you may predict what happens to your stocks (shares), but there are sometimes indicators that suggest what “may” happen.
1. The stock price has gone up quickly with no real explanation
It is likely to go up and down like a yo-yo from time to time. The times when it is suspicious is when it appears to rise more sharply than it should for no real reason. If it bounces up and stays there, then there may not be a problem. If it seems to rise for no reason in a somewhat gradual manner, then do your research and find out if they are offering shares to employees for a discount or as a saving scheme. Find out if there is a good reason for this seemingly odd occurrence, otherwise you may see a sharp decline some time soon.
2. The company earnings start to go down
There is no guarantee that lower earnings means a company’s share price will go down. It really depends on the circumstances, the company’s publicity, and it depends on the people who own shares. If they are the types of investors that pull their money out during the first signs of trouble, then the share prices will plummet when the company’s earnings start to go down. The reasons why earnings are going down may be diverse and complicated, which is why you should do a little digging before you sell. Others may sell and the price may go down, but a lowering in earnings may not signal that the share price will stay low.
3. Slower sales and exuberant analysts
These are actually two unrelated factors, but they are lumped together here because they are both really dumb reasons for a share price to fall. Firstly, if sales go slower, then it is no indication that a company is doing badly. Exuberant analysts will often fluff up the quality of a company that they personally want to succeed. Usually it goes up a little before people realize it is a lemon, and so they sell their stock and the price crashes. In both cases, if you already have shares in a company and you see a slowdown in sales or over-enthusiastic analysts, it is not a bad idea to stay the course and keep your shares. The prices will drop after a while, but there is little cause to think they will not recover.
4. Selling the shares
Quite often, when one of the bosses or major shareholders starts to sell share, many people start to follow. People figure, rightly or wrongly, that the insiders must know more than the rest of us, which means it is a bad sign when they start to sell. They may simply be liquidating their retirement investment, or they may be abandoning a sinking ship.
5. Dividend cuts
If a company is cutting its dividends, then there is probably a good reason for it. It may be worth keeping your shares depending on your investing strategy. However, be aware that if they cut their dividends, then the share price is probably going to go down. This is because there will be plenty of investors that only invest in the company because it gives out dividends. These people will sell in order to invest in other companies that give dividends.
6. Their debt just keeps getting worse
Debt is not always a bad thing, and many companies spend a lot of their time in debt, but increasing debt is a danger sign. Is the company extending its life unnaturally by getting into more debt? When a company continues to get into debt, it sometimes indicates that they may have problems later on down the line. However, their debt may help them improve their earnings, increase sales, or become more efficient in one way or another. It may also help them expand, and these are all factors that will eventually make their stock price rise. That is why debt is a tricky issue when trying to figure out if share prices will rise or fall.
7. Political problems
There are plenty of times when a new law or political problem starts to affect a company, and do not forget that many companies are caught in the umbrella net of crippling laws. For example, when minimum wages increase, smaller businesses suffer, and larger businesses have to cut the number of hours they give to their staff in order to maintain the status quo and not have their share prices drop too dramatically.
8. Industry and competitor problems
When there are industry problems, you often see most of the companies shed a fair amount of stock price. However, there are times when competitors cause industry problems. One great example is when Apple created the Smartphone. They dominated the mobile phone industry with it to the point where all other mobile phone producers suffered. Apple created an industry problem because other companies were too far behind (technologically) to compete in any meaningful way.
9. A lot of negative press
It always depends on the type of negative press. Usually, a little negative press sees stock prices lower for a short while before they recover. For example, when Pepsi had the scandal where people thought there were syringes in their bottles, their stock prices plummeted for a short while, but they soon recovered when the hoax was revealed and people forgot about it.
10. Accountancy worries
There are plenty of companies that seem to have accountancy worries. They may have highly complicated accountancy procedures that reduce their company’s transparency. They may also be in trouble for messing around with the books. Accounting issues may indicate that you should sell your stock as quickly as possible.
If you found this useful, then try our article on ten reasons why your shares may soon rise. Also make sure you read our article about how to detect and protect yourself from stock scams.