Stocks burying bad news: Here are 4 types of bad announcements that companies try to slip past you by releasing after 4.10pm

Stocks burying bad news is something that all investors will encounter at some stage in their investing journey. But some stocks go to greater lengths than others to cover it up and one tactic is to release the news after the market close.

The ASX closes for trading at 4.12pm each day but is open for announcements until 7.30pm (AEST) each trading day – an hour later during daylight saving.

It is rare to see good news released after the market close. But if you pay attention you’ll see your fair share of stocks releasing bad news post-market. And perhaps on a Friday afternoon just prior to the market close too.

In this article, we recap the 4 most common instances of bad news that companies will try and slip past you by releasing in the evening.

 

Stocks burying bad news: 4 instances

This is by no means an exhaustive list and there is nothing to stop companies releasing bad news earlier in the day. But by releasing it earlier, companies hope the bad news will get lost amidst the sea of good news companies the following day.

 

1. Profit warnings

When companies have issued guidance, they must advise shareholders as soon as it becomes evident that the result will differ from guidance previously issued.

If a company has not issued guidance but appears it will have a worse result this year and want to minimise the damage, release the news after-market one day.

Zicom (ASX:ZGL), a penny stock that is in the engineering services and manufacturing fields, did just this earlier this week. After the market close on Tuesday, it told shareholders it would be expecting a consolidated net loss comparable with the previous year’s S$8.5m loss.

Despite substantial orders, suboptimal execution and ‘supply chain issues’ had led to delays. It also tried to sugarcoat it by stating it expected the situation to improve and that it had more than doubled its outstanding orders from S$74.1m to S$175m.

 

2. Directors selling shares

When directors’ interest change – no matter how miniscule and regardless of whether it is shares, options or anything else – the company must lodge a Change of Directors Interest notice.

When directors buy shares, it can be perceived as a sign of confidence in the company’s prospects. But when they sell, it may be seen as a lack of confidence – even though there may be legitimate reasons such as paying a tax bill.

Companies may release the form after the market close, hoping investors don’t notice. Such notices aren’t labelled ‘market sensitive’ so some investors may not notice.

The company may or may not give an explanation as to why. In our view, it is always fishy when the company says the move was to ‘diversify [the director’s] investment portfolio’.

When companies are as honest as Bubs (ASX:BUB) was in 2019 when Kirsty Carr sold $5.9m in shares to buy a house – well, at least she and her then employer were honest, but still hardly inspiring confidence.

 

3. Legal cases

When a company is sued by another party, whether a competitor, a customer or disgruntled ex-employee, it is a major headache for the company.

This is before you consider investor re-action and one way to minimise it is releasing it post-market rather than in the morning.

 

4. Going out of business

This is the most common announcement you’ll see ‘deferred’ into the evening.

When a company bites the dust and goes into administration, shareholders are left with an asset that is illiquid and perhaps worthless (at least for them, even if the stock is recapitalised – they may be wiped out like Virgin Australia’s shareholders were in 2020).

Inevitably, shareholders will discover sooner or later, but they will be able to sleep easier for at least one more night than they otherwise would have.

The administrators who take over the company will likely be more transparent with shareholders, but keep in mind that retail investors are an afterthought for them. Who else will please think of the secured creditors?

 

The takeaway for investors

Each morning, investors look through the ASX market announcements platform, looking for both good and bad news.

We recommend if investors aren’t doing so already, they re-check the previous day’s announcements too. This way, they’ll discover bad news that a company tried to sneak past the public by releasing in the evening.

 

 

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