Stock Price Movement?

This news of a takeover offer for Kohl's (KSS) got me thinking…

Why did the stock price skyrocket by 30%? Did investors really rush to buy up the stock? Or are there barely any sellers right now? Maybe both? 

Same with upgrades/downgrades, earnings, and various corporate actions. Like just because there's an upgrade, why do investors seem to pile in all at once? 
 

Kind of appears, I don't know, rigged? 

Comments (21)

  • Prospect in HF - EquityHedge
Jan 24, 2022 - 5:14pm

I'm confused. The owners now believe they have a very good chance (not 100%) of being bought out for 30%+ more...why would they sell for (substantially) less? The price will not go exactly to the bid price because the deal might fall through, so people will buy or sell below that price depending on whether they think the deal will go through.

Am I missing something?

And, by the way, volume today for $KSS was 9x average. So, lots of buyers and lots of sellers.

Jan 24, 2022 - 5:37pm
Shadows, what's your opinion? Comment below:

Man I do not want to be rude but this is basic market dynamics.

If someone wants to buy the company for 64$ a share, why would anyone sell too far from this price ? There still are sellers, they are not just dumb and will not sell at any price.

If a company reports great earnings why would anyone sell at the same price as yesterday when they did not know about it.

In general news are incorporated fast by both buyers and sellers, hence the quick price change but there are still a lot of buyers and sellers as you can deduct from the volume of traded shares.

Jan 24, 2022 - 10:15pm
NJCA, what's your opinion? Comment below:

So who cares about the analyst that is doing the company/industry research, talking with management and trying to figure out the future financial direction of the company? It's almost as if said analyst might have some insight into future earnings capability which you know, drives the stock price…

Jan 25, 2022 - 1:57am
Shadows, what's your opinion? Comment below:

Man why do u disrespect analysts work ?

Sure they don't have a cristal ball, but who does? Still their recommandations and publications are read by the buy side of course.

More than the buy/sell recommandations there are some useful information on their reports, some key numbers they look at or some insights on the industry, etc...

This being said stocks generally don't move more than a few percents points on an analyst report, especially the big stocks well covered. If the stock move more it is because the analyst focused on some information that was overlooked by investors and they suddently realize they probably shouldn't have overlooked it.

After as always retails, algo trading, FOMO, etc.. can lead to some overreaction

  • PM in HF - Other
Jan 24, 2022 - 11:51pm

Every situation differs. But pretty sure in this case we have a series of activist funds who are actively acquiring stock now as they get much more aggressive in their approach. Do not need Algos to help them along themselves are the buyers.

In terms of upgrades/downgrades not unusual for sell-side/buy-side to have a relationship where ultimately both share the same view. Once an upgrade happens allows other firms to take part/add positions. 

Most Helpful
Jan 24, 2022 - 11:52pm
Fill-or-kill, what's your opinion? Comment below:

I threw MS at OP -- no offense but that's a stupid question coming from someone VP+ level. Go back to Corp Finance 101 and think about efficient markets. If PE Sponsor A is going to buy Company B for a 20% premium over market, then I can make free money by buying the stock now and selling it to PE Sponsor A when the deal closes. Even when the spread is tiny, on an annualized basis I've locked in a return greater than the risk-free rate. Lever up, baby! Welcome to Risk Arb.

Revisions are a bit different. Sure, small changes in revisions may not have much predictive power, but significant revisions (> 5% to EPS), especially from a key analyst (who either writes reports for a big AM arm, or is a "celebrity"), is very meaningful and people do trade it. Why? Because if a stock is trading at a 10x multiple and the denominator went up 5%, so too will the price unless your view on the multiple has changed. If you're in the same macro regime then it hasn't. It's not a perfect 1:1 but you get the picture. Also, revisions are leading indicators of beats, and much trading occurs around earnings because that's the scoreboard managers use to evaluate companies. Got it?

The holy grail of trading (not investing) is finding risk-free profits or as-close-to-risk-free-as-possible profits. 

  • VP in IB - Gen
Jan 25, 2022 - 8:32am

Maybe I phrased my original question wrong. How does a stock price increase on a potential take over if supply and demand of a stock hasn't changed (i.e. there are still around the same number of buyers and sellers)? 

How does the price magically match close to the takeover price (providing a little room for risk arb)? 

Jan 25, 2022 - 2:04pm
Shadows, what's your opinion? Comment below:

Obviously supply and demand has changed after such a news.

But let's imagine it didn't for the example, so you have the same supply and demand but around a new reference price because of the new information. The same buyers are now ok to buy higher and the same sellers now wants to sell higher. No change in number of buyers/sellers but new information is assimilated.

Price does not magically move. Price is the matching of buyers and sellers. You should look at how traders send ordres, as well as an order book to see how trading works. Go ask your colleagues on the trading desks.

Jan 25, 2022 - 3:05pm
Sinner G, what's your opinion? Comment below:

I mean "VP in IB" does seem questionable when I could easily answer it, and I'm a plebeian junior at a liberal arts non-target. Not trying to be a dick, just saying my first reaction after reading the question  was also "VP in IB?"... 

  • Associate 1 in PE - Other
Jan 26, 2022 - 2:20pm

This just goes to show that anyone can become a VP these days

  • Intern in HF - EquityHedge
Jan 26, 2022 - 3:27pm

dude your job is literally m&a jesus christ 

Jan 29, 2022 - 6:38am
TheBuellerBanker, what's your opinion? Comment below:

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