What happens to the share price when a company's earnings exceed expectations?

When a company's earnings exceed expectations, it typically leads to an increase in share price. This reaction occurs because higher-than-expected earnings signal to investors that the company is performing better than anticipated, which can enhance its projected growth and profitability. Investors often perceive this as a positive indicator of the company's future performance, leading to heightened demand for the shares. This increased demand, in turn, drives up the share price.

Moreover, exceeding earnings expectations can often improve investor sentiment and attract new investors who might have been previously cautious about the company's stock. As a result, the share price reflects this optimistic outlook, usually resulting in a noticeable increase following the earnings announcement.

In contrast, scenarios like a decrease in share price or a stagnant response typically occur in situations where market factors dominate, or if investors had already anticipated strong earnings, thus failing to react as sharply to the news. Such responses are outliers compared to the more common outcome of increased share prices after positive earnings surprises.