Alcoa stock (NYSE: AA) dropped 18% in just the last one week. What’s somewhat baffling, at first, is that this happened after the company beat analysts’ expectations in the recently announced Q4 and FY2020 results. by a huge margin. The company reported EPS of $0.26, more than 2x consensus estimate of $0.11. This is also a significant improvement from the Q3 2020 loss of $1.17/share. Alcoa revenues also came in at $2.39 billion in Q4 2020, slightly better than expectations. But what took the stock down was the guidance and management commentary which was cautious post the results. The company expects increasing cost and weak bauxite pricing to be important headwinds which could take a toll on earnings in the coming quarters. But will Alcoa’s stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely?
According to the Trefis Machine Learning Engine, which identifies trends in a company’s historical stock price data, returns for Alcoa stock average close to -1.6% in the next one-month (21 trading days) period after experiencing an 18% drop over the previous one-week (5 trading days) period. Notably, though, the stock is likely to underperform the S&P500 over the next month, with an expected return which would be 3.5% lower compared to the S&P500.
But how would these numbers change if you are interested in holding Alcoa stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Alcoa stock chances of a rise after a fall and vice-versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!
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MACHINE LEARNING ENGINE – try it yourself:
IF Alcoa stock moved by -5% over 5 trading days, THEN over the next 21 trading days, Alcoa stock moves an average of 0.8 percent, which implies a return which is 0.5 percent lower than that of the S&P500.
More importantly, there is a 49% probability of a positive return over the next 21 trading days and 44% probability of a positive excess return after a -5% change over 5 trading days.
Some Fun Scenarios, FAQs & Making Sense of Alcoa Stock Movements:
Question 1: Is the average return for Alcoa stock higher after a drop?
Consider two situations,
Case 1: Alcoa stock drops by -5% or more in a week
Case 2: Alcoa stock rises by 5% or more in a week
Is the average return for Alcoa stock higher over the subsequent month after Case 1 or Case 2?
AA stock fares better after Case 2, with an average return of 3.1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 5.1% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Alcoa stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold Alcoa stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For AA stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
Question 3: What about the average return after a rise if you wait for a while?
Generally the average return for a stock after a rise is lower than after a fall. Similarly, average return after a fall is likely to be more than after a rise. Interestingly, Alcoa stock seems to be an exception to this observation. Historical data suggests that even after rising, Alcoa stock largely continues to trend higher. The below table summarizes this observation.
AA’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
It’s pretty powerful to test the trend for yourself for Alcoa stock by changing the inputs in the charts above. As per Trefis, Alcoa’s valuation gives us a fair price estimate of $23 per share for AA’s stock.
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