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More companies suspending earnings guidance as economy tanks
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Guidance is a way for a company to help others assess what its stock is worth.
“Firms often choose to voluntarily initiate guidance so that they can help the market and investors and suppliers and a lot of people to understand what are their future expectations for performance,” said Kris Allee, an accounting professor at the University of Arkansas.
But right now, many companies don’t know what’s gonna happen tomorrow.
Since March 16, 46 have withdrawn quarterly guidance and 151 have pulled annual guidance, according to the National Investor Relations Institute. United Airlines, Twitter, Dell and Shopify are among them.
“It would be almost irresponsible for them to be able to provide guidance when they, themselves, don’t really have a full understanding of the effects this pandemic is going to have on their bottom line,” Allee said.
In normal times, it’s a bad look when companies clam up, according to Baruch Lev, professor of accounting and finance at NYU.
“When you stop guidance, the stock price is hit because it increases significantly [the] suspicion of investors. ‘Why did you stop? What’s the reason?’ ” he said.
But Ariel Fromer Babcock, head of research at FCLT Global, thinks the fallout from all these companies ditching guidance lately could be positive. Namely, less pressure to produce short-term results and more long-term strategic planning, which can provide a more accurate picture of a company’s health.
“We could see a real shift that could bring a whole wave of beneficial things in its path,” she said.
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