What is a Sandbag 'Sandbag'

To sandbag is to lower expectations of a company's or individual's strength in order to produce greater than anticipated results. Sandbagging, in business, is most often seen when company managers temper the expectations of shareholders by giving guidance below what they know will be achieved. The result is that once the better-than-expected results are presented, investors are more impressed than they would have been if the company had merely met expectations.

BREAKING DOWN 'Sandbag'

Sandbagging has become commonplace in the forward guidance about expected revenues and earnings. As a result, the response of investors is often more muted than it would be otherwise. In some cases, a company that has sandbagged analysts may beat expectations only to see its stock price fall because earnings failed to exceed expectations by as much as investors expected. 

Example of a Sandbag

Imagine that Orange Inc. has gained a reputation for being a straight shooter, not a sandbagger, in providing guidance on quarterly results. During the last quarter, the company said it was likely to post modest growth in sales and earnings. Analysts and pundits alike are confident that upcoming quarterly numbers will be uneventful. But when results were released, they are higher than the consensus estimate, resulting in analyst upgrades and positive press coverage.

Imagine the above scenario except that the company has a reputation for sandbagging. Because of the company's reputation, the stock price could be largely unaffected by the better-than-expected quarterly results.

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