What is an Asteroid Event?
An asteroid event is a sudden, unexpected occurrence that has serious ramifications for a business.
Grasping an Asteroid Event
Asteroid events are types of event risk that find companies unprepared. For instance, if a public company depends on a specific executive or board member, or the sales of one or a couple of products, then, at that point, a sudden flight or market disruption could reduce sales and the stock price.
Institutional investors may try to benefit from an asteroid event on the off chance that they see it as a transitory stock mispricing. Such a strategy use the propensity of a stock price to diminish due to a sudden or sensational change. Stock analysts survey factors, for example, the regulatory environment and potential collaborations or benefits of the changes, then set another price target for the stock. An investment decision would then be made in light of the current stock price and the price objective. A right call could lead to profitable exchanging; a mistaken call could create losses.
For instance, when an asteroid event, for example, a hostile takeover happens, the stock price of the company is likely to fall. Research analysts aim to project whether the takeover will happen, and its effects and their duration as well as suggestions for earnings and the stock price. In the event that the takeover fizzles, the stock price could rise or fall relying upon market sentiment. Analysts could estimate a stock price range or select a single price target for each. Investors would buy or sell shares of the target company contingent upon their outlook on the transaction and the stock price
Risk factors in the 10-k Report
Companies are required to distribute fundamental data so investors are better able to make informed investment decisions, in records, for example, the annual 10-k report. Five sections are incorporated: business outline, risk factors, chose financial data, management discussion and analysis of financial condition and aftereffects of operations (MD&A) plus financial statements and advantageous data. The risk factors section records current and potential risks the company faces, listed arranged by significance and may give hints to areas vulnerable to event risk or asteroid risk. Be that as it may, it centers around the actual risks, not how the company addresses them.
A few risks might apply to the whole economy, some just to the company's industry sector or geographic region, and some might be unique to the company. Companies might talk about how they handle competition, build their brands, or oversee in an economic downturn. Or on the other hand, they might address how they guarantee compliance with laws and regulations, or how they are addressing the impact of new or expected laws and regulations.
Illustration of Asteroid Event
For instance, asteroid events might happen in small drug or biotechnology companies dependent on clinical trial achievement, FDA endorsement, and product sales of a single medication. Assuming company ABC has just a single medication ready to go for FDA endorsement and the endorsement gets denied, it can leave the company wrecked.
Other potential asteroid events are restructurings, mergers and acquisitions, bankruptcy, side projects or takeovers.