Listed companies must notify the market in a timely manner of any major developments or information that would, if generally available, be likely to have a significant effect on the company's share price. These rules are meant to prevent insiders from gaining an advantage over other investors by having an opportunity to trade using price-sensitive information before anyone else gets to hear about it.
Some of the major events that need to be disclosed are obvious: mergers, legal decisions that go against the company, and any changes to top management. Another situation where the company may have to make an announcement is if management realises that its profits are going to be significantly lower than the market currently expects.
In cases where the company has made official profit forecasts, or implied in conversations with analysts that it expects a certain outcome, the law is clear that it has to notify the market of any major changes. If the company has deliberately remained silent, and analysts have come to their own conclusions, it has more leeway on whether or not to disclose, especially if the new forecasts are themselves uncertain. However, many companies choose to disclose pre-emptively anyway.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Profit warnings can often look to unwary investors like tempting buying opportunities and sometimes they are. But remember that the old City saying "profit warnings come in threes" exists for a reason. The initial profit warning may simply be the start of the revelations a problem that management had originally hoped would go away may merely get worse, and you often have to see heads rolling before a genuine turnaround can begin. So do your homework before you buy a troubled stock (or "catch a falling knife", as the City jargon has it).
-
8 of the best houses for sale for around £500,000Some of the best houses for sale for around £500,000 – from a 19th-century stone farm cottage in North Yorkshire and a two-bedroom apartment in Edinburgh’s New Town to a converted Methodist chapel in Norfolk
-
What will the unravelling of US-China trade mean for the economy?What will a US-China decoupling mean for the global economy?
