Posted in Finance, Accounting and Economics Terms, Total Reads: 220
Definition: Stock Catalyst
Stock Catalyst refers to an information of a company or incident that came into stock market and have resulted in increase or decrease of the stock price of that company. Stock catalyst can change the stock anyway, the favorable news can drastically increase the stock price and an unfavorable news can make the stock price all-time low.
For example, ABC company decides to acquire a company, which will increase the company’s earning drastically so when this information of acquisition comes into market, it will increase the company’s stock price as the acquisition of another company is a positive sign for the company and will increase the returns in future.
Some examples of favorable news can be
• The earnings for the year is stronger than what people expected
• A new acquisition or deal
• Launch of a new product
• Any dividend policy change etc.
But some information can create a bad image for the company thus it can lead to fall in stock price
For example, ABC company issued its earnings report which was very less than what people expected, thus it can lead to fall in stock prices. Such information is a catalyst since it can perception of people for the company.
Some example of unfavorable news can be
• The earnings are not stronger than what people expected
• Any cancelation of deal
• Any problems in management
• Court cases
Some unfavorable catalyst is for short term period and it is not about how the company performs, so the investor should not sell their stocks moreover they can buy the stocks when the stock price is less. But they should consider whether the stock will rise or not.
It is about what people think about the stock and what kind of perception people have. Thus even press plays an important role in creating such perception of people. So catalyst is the information that attract people’s attention towards the company. And they only buy the share of that company when they feel the stock price will rise and sell when they feel the prices will fall.