Shares in WH Smith (LON:SMWH) are currently trading close to a 52 week high, with the share price up by around 5.22% to 2316p over the past week. On a one-month basis, the WH Smith price has risen by 10.7%. At the current level, it’s trading at -0.15% below its 52 week high.
For investors holding the stock (or considering buying it), the question is: what now?
52 week highs are a popular market indicator. Yet research shows investors can be left wondering whether to sell the stock and take a profit or buy more and ride the uptrend. With this in mind, here’s a primer on what you should know about stocks hitting ‘new highs’...
Making sense of 52 week highs
52 week highs are always good news. But you might be surprised to know that the prices of high performing shares can be slow to move when these companies publish positive earnings news.
Studies show it happens because investors are wary about bidding high performing shares any higher (even if they deserve it).
This unusual behaviour is down to what the psychologists Amos Tversky and Daniel Kahneman called anchoring-and-adjustment. We form beliefs by using reference points (like share prices). But as new information comes to light (like earnings reports) we're often slow to update our beliefs away from the original anchor point.
Evidence shows this tug-of-war usually ends with the ‘new high’ stock actually 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.
A look at WH Smith’s StockReport could offer more insight into what’s driving the momentum in its share price - and whether that might continue.
With Wh Smith trading close to its 52 week high, it’s possible that investors in the market are uncertain about whether to buy, hold or sell it. This uncertainty can cause erratic pricing in the short-term before momentum takes over - and it’s worth considering this before making your own trading decision.
To find more stocks that are trading close to their 52 week highs, you can explore this constantly updated 52 Week Highs screen, which covers all the ‘new highs’ in the market.