Are you curious about how performance affects stock prices? Let’s explore real-life examples to see how a company’s performance relates to stock prices and why stock prices don’t always move in line with performance.
Performance and Stock Prices Don’t Always Align
Examples from Hyundai Motor and SK Telecom
In 1986, Hyundai Motor achieved record performance due to strong exports, yet its stock price remained flat for three years. Conversely, stocks like securities and bank shares soared simply because of an increase in market liquidity. In January 2003, SK Telecom’s stock price plummeted due to a financial fraud scandal, even though the company’s performance was at its peak. This shows that good performance does not always lead to rising stock prices.
The Dongyang Major Case
In December 2002, allegations of financial fraud at Dongyang Major emerged, but the stock price had already significantly dropped by then. The stock price remained stagnant for a year and then began to rise, not because of improved performance, but because of an announcement that it would become a holding company for Dongyang Group.
The Limits of Value Analysts
Value analysts often assert that “good performance leads to rising stock prices,” but this is not always the case. While stock prices can move based on performance, there are many instances where they do not.
The Difficulty of Predicting Corporate Performance
Unpredictable Performance
Corporate performance is difficult to predict, even for executives and front-line salespeople. Executives may set goals, but it’s uncertain if those goals will be met, and it’s even more challenging for analysts or investors to accurately predict them.
Example of Samsung Electronics
In the first quarter of 2009, predictions for Samsung Electronics’ operating profit varied widely among domestic and international securities firms. Domestic firms predicted a loss of 400 billion to 500 billion won, while foreign firms predicted a loss of 500 billion to 900 billion won. However, the actual operating profit was announced as a 470 billion won surplus, highlighting the difficulty of performance predictions.
The Limitations of Outsiders and Stock Price Predictions
Even Large Corporations Struggle
Philips of the Netherlands steadily sold its shares in LG Display until April 2008, but waited a year for a price recovery before eventually selling due to the global economic downturn. This shows that even large corporations struggle to accurately predict the performance and stock prices of competitors.
The True Relationship Between Performance and Stock Prices
Stock investors often pay close attention to performance announcements, but good performance does not guarantee rising stock prices, nor does poor performance guarantee a decline. Many factors influence stock prices.
Conclusion
Predicting the impact of performance on stock prices is extremely difficult. Stock prices are determined by various factors, not just performance. Therefore, making investment decisions based solely on performance can be risky. Investors should consider a wide range of factors beyond performance.