Reviewed by Sep 28, 2020| Updated on
An asteroid event refers to unexpected events or unforeseen events which have adverse consequences for any business. Asteroid events are those whose risk is high and not totally quantifiable.
For example, a listed company’s loan restructuring involves the personal pledges of the chairman and other family members. If the entire family dies in an accident, the event causes business disruption and leads to heavy discounting of the stock price.
Understanding Asteroid Event
Asteroid events can occur in businesses which are dependent on certain people or external approvals for success. In the pharmaceutical sector, the business turnover and recovery of research and development costs are dependent on drug approvals from the drug regulator in India or other countries. The approvals also include inspection of drug facilities and successful clinical trials.
Many times institutional investors and other brokerage firms seek to take advantage of any news of business developments which can be an asteroid event. They can place their bets on the expectation of upward or downward movement in prices. The strategy can help leverage the benefits of price movements.
Stock analysts often review all factors affecting a company’s business, such as legal, contractual, and debt obligations. Analysts also review news about new product launches, mergers, and acquisitions. The news may be an asteroid event where a company is likely to be adversely affected by the event.
In case of a hostile takeover bid from a competitor, a company may suffer negative movements in its price. There can be expectations of negative growth as a result of the event. Analysts help bring out the likely implication of the bid on the operations and future revenues of the company. In case of adverse expectations, the stock price gets discounted and may become an attractive target.
Generally, public companies publish financials and other information about recent announcements as per the rules and regulations of the market regulator.
In India, SEBI governs the disclosure requirements for public companies. Investors can access the publicly available information and also news and views in the press to help themselves make informed decisions about investing.