The CEO of Everbridge Inc (NASDAQ: EVGB) resigned unexpectedly last night the company announced and the stock is down 27% premarket this morning. A good example of what markets really hate is uncertainty. The future of the Everbridge stock price depends upon the resolution of exactly that uncertainty.
Everbridge was trading up at the $160 per share level back in September and the results on Nov 9 were pretty good – an earnings beat by 19 cents for example. However, those same results indicated that future growth rates would slow which depressed the stick value. The price fell to the $110 level and since climbed again to $120. At which point we get this news overnight of the resignation of the CEO, David Meredith, and the Everbridge stock price slumps that 27% to the current, at pixel time, $83 level.
One problem here is that the resignation was not just unexpected it is also, as yet, unexplained. The executives taking over are well enough regarded but why the CEO went matters.
It’s possible simply that the board – or even Meredith – simply felt that the slowing growth prospects were bad enough that he should go. This shows a certain impulsiveness but nothing fundamentally wrong. The CEO falling on his sword for not good enough results could be a good sign. Alternatively, there could be some deeper problem that is as yet unexplained.
Until this is resolved, resolved in the sense that the market knows why the resignation happened, we can expect significant volatility in the stock price. Even resolution could mean a significant shift in the price either way dependent upon what the reason was. Trading to be on the right side of the outcome could be appealing.
Analysts have been busily downgrading the Everbridge prospects. Baird’s analyst, for example, downgraded the target price from $175 to $95. The Barclay’s analyst thinks $90, down from a similar $185. The CEO resignation does come as a surprise but the downgrade of the overall corporate prospects is in that slowing growth rate.
At Stifel, the analyst is worried that the predicted growth rate of 22 to 23% for 2022, down from 36% in 2021, increases the uncertainty about Everbridge’s future prospects. That plus the obvious uncertainty of why the CEO resigned and the target price is $100.
There are two obvious influences on the Everbridge stock price here. One is that slowing of growth and thus the rerating of the stock to reflect the less bright future. That’s something that is possibly subject to future reappraisal but the underlying fundamental is unlikely to change immediately. The other is this story of why the CEO resigned. A clear explanation of why and wherefore could more the stock in either direction in the very short term. Which direction is dependent upon what reason is given.
The short-term lesson and opportunity here is that markets just hate uncertainty. While it continues we might expect continued price volatility. Resolution of the uncertainty could push the stock in either direction but is likely to reduce the volatility.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.