NEWSWIRE - October 18, 1999
Topic: Stock Valuation and Market Efficiency
Source: "Abercrombie & Fitch Ignites
Controversy Over Possible Leak of Sluggish Sales Data," by
Susan Pulliam, Wall Street Journal, Thursday, October
14, 1999, page C1.
Synopsis of Article: On Wednesday, October 13,
1999, Abercrombie & Fitch (Ticker: ANF) announced an
increase in same-store sales of 12% compared with the same
quarter last year. However, security analysts expected an
increase in the 15% to 17% range. This lower than expected
growth in sales caused analysts and investors to lower their
intrinsic value of the security by about 19% during the day.
However, the more important issue that is raised regards the
method used to release the information, not the content. It
appears that several analysts received the news several days
before the general investing public. Furthermore, the firm's
management also issued a press release declaring that there
were no major changes in sales trends. As a result, a small
group of high net worth clients was able to trade on the
upcoming news release prior to the official disclosure of
disappointing sales. This raises questions regarding the
overall informational efficiency of stock markets as well as
methods used to value stocks.
DISCUSSION QUESTIONS:
- Although Abercrombie & Fitch announced same-sales growth
of 12%, their stock price fell by 19%. Why?
- What are the three forms of the efficient markets hypothesis,
or EMH? Given the series of disclosures in the article,
which form of the EMH best explains the market for Abercrombie
& Fitch stock?
- Abercrombie & Fitch does not pay a dividend. How could
you value such a security?
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