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As Serco hits a yearly high, is it too late to buy shares?

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With shares in Serco (LON:SRP) currently trading close to a 52 week high, a question many on the sidelines probably have is: "was I too late to buy them"?

The share price is up by around 17.1% over the past week. On a one-month basis, the Serco share price has risen by 17.6%. Will this continue however? We can briefly look at the psychology and research around 52-week highs.

GET MORE DATA-DRIVEN INSIGHTS INTO LON:SRP »

Do prices tend to continue rising after a 52-week high is hit?

52 week highs are always good news. But, surprisingly, research shows investors become hesitant about bidding their high performing shares any higher – even with further positive earnings news.

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. We become 'anchored' to the new price and cannot easily fathom a reality in which it could get any better.

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, momentum takes over and the price moves higher and higher (as fear of missing out sets in).

What does this mean for potential investors?

With Serco 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 Serco that you can find out about here.

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