A STOCK IS SET TO PLUMMET IF…
...it missed an already reduced forecast
Companies do not lower their projections from time to time, unless a macroeconomic situation darkens or specific matter emerges. The firm, when releasing the new, lowered forecast, should clear it. If the company fails to reach the modified projection, it can affect retail and/or institutional shareholders, as well as their capability to trust management negatively. Also, a group of analysts might end up criticizing the corporation or its stock because of missed forecast. If they scale back their estimates and/or lower their rating, it could have a negative effect on the share price.
...there is an insider selling
Insiders are almost everywhere. They sell shares of their publicly traded companies’ stock. But some executives have very valid rationale for unloading their shares, such as to pay their bills or book profits or diversify their holdings. However, that is not always the case. Some insider selling activity or transactions are not legal, including a group of executives unexpectedly decides to sell off a chunk of their holdings, individuals who sell a colossal portion or percentage of their overall holdings, or those who sell at or close to their 52-week troughs.
...there is a discontinuation of guidance
It has never been easy to provide quarterly or annual financial forecasts. But not giving a guidance on a regular basis is another story. When a firm suddenly stops giving projections, most investors might think something is up. It may signal the entity has no idea or does not expect to have an idea on when earnings could be reported. Also, it may indicate macroeconomic or company-specific factors may have a huge impact on forward earnings. Companies that are not forthcoming or does not update the investment community regarding its progress may be attempting to conceal bad news.
...companies reduce dividend
In most cases, firms that pay dividends are frequently viewed as a sign an entity is performing well. But when a corporation abruptly suspends its dividend, the company might be suffering financial trouble. Aside from that, a firm is about to sell assets, close plants, or reduce jobs. As a result, income-focused investors may unload their shares of that company.
...firms surprisingly stop repurchasing shares
The corporation, when it suddenly halts repurchasing shares, is either short on cash or thinks the shares are not a feasible investment at the time. Neither scenario would be appealing to investors.
...there is lack of diversification
For companies to stand out, they should introduce new, innovative products. Those that do not innovate might be at risk of becoming irrelevant, especially is a better product or improved technology is launched in the market. To remain relevant, companies should keep abreast of the latest trends. They do invest in firms that do not come up with new products or capitalize on one product line.
...the overall industry is in distress
For instance, companies in the music industry may experience similar trends. It is important for investors to observe how the company performs compared to its competitors. In other words, be wary of what is going around the industry.