Why investors should pay attention to job postings
Whenever you’re considering investing in a company, you do your due diligence, but part of that due diligence should be looking at job postings. A recent academic study found that online job postings are a leading indicator disclosure that companies make outside their financial reports.
Q2 2020 hedge fund letters, conferences and more
What job postings tell investors
The main reason investors should look at online job postings is because it provides a clue about the health of the company they are considering investing in.
Qualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” – Ian Cassell Executive Summary Readers of investment letters fall into Read More
“There’s much more focus on job postings in the news during the COVID-19 crisis, and that information signals the economy as well as how firms are doing,” said co-author Ben Lourie of University of California, Irvine. “Our study is the first to actually provide evidence that this is the case.”
For example, the study found that changes in the number of job postings are positively associated with one-year growth in earnings and sales. As a result, it should come as no surprise that investors react positively to changes in the number of postings.
The study also found that job postings are a strong predictor of future performance when they are done for growth rather than replacing employees. This is an important point because more listings can indicate both extremes.
Most postings can indicate that a company is strong because it is growing rapidly. On the other hand, more postings can also mean that turnover is high, which is negative for a company’s stability and indicates problems with management.
What this means for investors
Unfortunately, individual investors who want to review job postings during their due diligence process will have a difficult job ahead of them. For now, investors would have to individually review a company’s online job listings to try to get this information, which is very time consuming. However, that could change one day.
“The big problem with job postings is that it’s expensive to pull this data together and providers that collect it sell it to hedge funds and institutional investors, leaving the small investor behind,” Lourie says. “I don’t see a feasible way for small investors to pull the data themselves. It will just take too much time. I am guessing that with time, there will be more alternative data providers that will collect such information online. This type of competition should drive prices down.”