Reference no: EM13855544

Dale Pacioretty: Best Sell, a consumer electronics corporation, just reported its second-quarter earnings that topped analysts' expectations, and I saw Best Sell shares rose sharply after the earnings report came out. It is like crazy! Look at the stock price of GHH, another retailer of consumer electronics. It was also going up significantly. Why did GHH's stock price also jump today? Can any of you explain this to me in detail?

Carey Subban: Hold on Dale. I closely follow Best Sell, too. A few quarters back, Best Sell also posted very impressive earnings performance, but its stock price barely moved by then. Why? I skipped the class. My bad, my bad! But, you guys have to first help me out on this.

P.K. Weise: Yeah, my recollection is that its stock price went up significantly afterwards. Is this the "post- announcement drift" we learned in class? I am so confused.

Max Gallagher: I heard the Accounting Standards Board (AcSB) takes a position that accrual anomalies could be reduced if the accrual component of earnings is more persistent. This makes a lot of sense to me, but I don't know how to improve the persistency of the accrual component of earnings. Do you guys have any inputs?

Brendan Price: Look, in the earnings announcement, Best Sell also reported that its same store sales increased by 1.5 per cent. In my marketing class, I learned that this measure gauges a retailer's health as it excludes sales from stores that recently opened or closed during the year. Maybe investors should focus on this measure, instead of earnings, in valuation. Perhaps Best Sell should report this figure on the income statement. Eh?