Spirent Communications PLC shares hit new high on upbeat trading news

Shares in Spirent Communications (LON:SPT) have hit a 52 week high, with the share price up by around 10.5% to 165.6p over the past week. On a one-month basis, the Spirent Communications price has risen by 14.5%. 

The move follows a first quarter trading update yesterday in which Spirent said it was trading in line with its plans, with sales and earnings both up on 2018.

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 Spirent Communications’s StockReport could offer more insight into what’s driving the momentum in its share price - and whether that might continue.

What does this mean for potential investors?

With Spirent Communications 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 Spirent Communications that you can find out about here.