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Shares in CDK Global (NSQ:CDK) are currently trading close to a 52 week high, with the share price up by around -0.24% - to $54.5 - over the past week. On a one-month basis, the CDK Global share price has risen by 1.00%.
For investors holding the stock (or considering buying it), the question is: what now? Is it best to buy more and ride the uptrend, sell and take the profits, or do nothing?
At Stockopedia we're aware of the popularity of the 52-week high as a market timing indicator. In our experience, investors are often left wondering what to do when it happens when a 52-week high is hit. As a lot of our work is driven by insights from academic research, here’s a primer on what the academic research says in this area:
What happens when a share hits a new high?
52-week highs are always good news. But surprisingly, the prices of high performing shares can be slow to move when they publish positive earnings news.
Research shows this happens because investors are cautious about bidding high performing shares any higher (even if they deserve it). Psychologists call this anchoring. As humans, we tend to take our time when it comes to changing our opinions in the face of new information - even when it's good news.
This emotional tug-of-war often ends with the ‘new high’ stock drifting higher in price over the coming weeks and months. The upward trend is called “post earnings announcement drift”. As the news sinks in over time, momentum takes over and the price moves higher and higher.
What does this mean though for current shareholders and those considering buying? The post-earnings announcement drift means that a share price is likely to continuing rising after a given share hits at 52-week high. Of course, you would want to look at other factors (such as whether a share has good fundamentals) before making a decision to buy or sell.
What does this mean for potential investors?
With CDK Global trading close to a 52 week high, it’s possible that investors in the market are uncertain about where the price will move next. It's important to remember that momentum on its own is no guarantee of future returns.
To get a better idea about whether this trend will continue, it's worth doing some investigation yourself. Indeed, we've identified some areas of concern with CDK Global that you can find out about here.