What Is Sandbagging?

Sandbagging is a strategy of lowering the expectations of the strengths and core competencies of a company or an individual in order to produce greater-than-anticipated results. In business it is most often seen when a company’s top brass tempers the expectations of its shareholders by providing financial g𒐪uidance that is well below what they know will likely be achieved.

In effect, management personnel lowball projected earnings and other performance indicators. Then, when the comꦉpany achieves better-than-expected results, investors are significa🦄ntly more impressed and grateful than they would have been if the company had merely met the less-than-stellar expectations.

Understanding Sandbagging

Sandbagging has become commonplace in the world of forward guidance when it comes to the declaration of expected revenues and earnings. As a result, the response of investors is often 🅠more muted than it once was, because they are becoming wise to the practice. Analyst valuations can take into consideration the practice of sandbagging if it has occurred often enough.

In some cases sandbagging backfires, because investors call the bluff of those doing the sandbagging and anticipate the greater performance that the sandbaggers were attempting to cloak. Sometimes a 澳洲幸运5官方开奖结果体彩网:stock price falls due to sandbagging, because e⛎arnings failed to exceed expectations by the amounts investors had expected.

Other Common Contexts of Sandbagging

The phenomenon of sandbagging isn’t merely restricted to earnings guidance reports delivered by 澳洲幸运5官方开奖结果体彩网:publicly traded companies. It is also used in recreational activities where betting is frequently involved. For example, a pool shark may deliberately shoot a game poorly when encountering a new player who is unaware of their actual skills. This might🌌 entice the new player to accept bigger betting stakes, which then turns out to be a bad move when the pool shark reveals their actual prowess.

Sandbagging can also be used by a poker player who initially plays losing h🐼ands to trick the other players into believing that their game isn’t good enough to pose a legitimate competitive threat. In racing sandbagging refers to deliberately qualifying at a slower speed than that at which a car can actually perform, allowing the driver to falsely earn a placement advantage in the lineup.

Sandbagging applies to any circumstance in which someoneඣ chooses to appear less skillful than they actually are. It is not illegal, but it is viewed as dishonest.

Example of Sandbagging

Imagine that Orange Inc. has a reputation for being a straight shooter in its practice of providing guidance on quarterly results, and during the most recent quarter the company declared that it was likel🌄y to post modest groℱwth in sales and earnings.

Analysts and pundits alike will be confident that the results will match the company’s projections due to Orange Inc.’s reputation. However, Orange Inc. has deliberately underestimated its financial projections, and when figures are released they are higher than the consensus estimate. The company has engaged in sandbagging, and the results are analyst upgrades and positive press coverage.

Now imagine the aforementioned scenario with a company known for sandbagging. The stock price would likely be largely unaffected by the better-than-expected quarterly results, because its continuous sandbagging would have been factored into analyst valuations.

The takeaway from these two examples is th🃏at sandbagging has a limited effect when it is overly employed, as investors are quick to catch on to it. Orange Inc. had better watch itself, or it will lose its reputation for honesty, and any further sandbagging it does will be rendered largely impotent. In effect it would become the 🐠boy who cried, “Wolf!”

The Bottom Line

Sandbagging is an unsavory practice designed to produce positive results for its employer by deliberately misleading other people. It may work in the short term, but its repeated employment will tarnish a reputation and lead to diminishing results, as people will catch onto the practice and not be so easily fooled. Indeed, it is a form of lying.