A common practice for analysts is to look at competitors of companies they follow and infer from the results of these competitors what might happen to the companies under their coverage.
I think it would be interesting to see how/when competitor read through started to fade. My guess is that it will have coincided with the rise and rise of the ETF, which in my view has led to a loosening of valuation standards across the board.
"So, if a star company in an industry reports surprisingly positive results, go look for other companies in the same industry that not only disappointed with their last earnings results but also have a share price that significantly lags the share price of the entire industry over the last year. These are the companies where investors are quite pessimistic about the outlook and any kind of positive news takes much longer to filter through to the share price. And thus, these are the companies to buy in expectation of a positive earnings surprise on the next results day."
Funny, I've done exactly that, instinctively for years. Good to see the science behind it!
I think it would be interesting to see how/when competitor read through started to fade. My guess is that it will have coincided with the rise and rise of the ETF, which in my view has led to a loosening of valuation standards across the board.
Good thesis. Intuitively, I agree with you
"So, if a star company in an industry reports surprisingly positive results, go look for other companies in the same industry that not only disappointed with their last earnings results but also have a share price that significantly lags the share price of the entire industry over the last year. These are the companies where investors are quite pessimistic about the outlook and any kind of positive news takes much longer to filter through to the share price. And thus, these are the companies to buy in expectation of a positive earnings surprise on the next results day."
Funny, I've done exactly that, instinctively for years. Good to see the science behind it!