What Is Average Selling Price (ASP)?

The term average selling price (ASP) refers to the price at which a certain class of good or service is typically sold. The average selling price is affected by the type of product and the product life cycle. The ASP is the average selling price of the product across multiple distribution channels, across a product category within a company, or even across the market as a whole.

Understanding Average Selling Price (ASP)

The average selling price is the price for a product or service in various markets, and is normally used in the retail and technology industries. The established ASP for a particular good can act as a benchmark price, helping other manufacturers, producers, or retailers set the prices for their own products.

Marketers who try to set a price for a product must also consider where they want their product to be positioned. If they want their product image to be part of a high-quality choice, they have to set a higher ASP.

Products like computers, cameras, televisions, and jewelry tend to have higher average selling prices while products like books and DVDs will have a low average selling price. When a product is the latter part of its product life cycle, the market is most likely saturated with competitors, therefore, driving down the ASP.

In order to calculate the ASP, divide the total revenue earned from the product by the total number of units sold. This average selling price is usually reported during quarterly financial results and can be considered as accurate as possible given regulation on fraudulent reporting.

Special Considerations

The smartphone market is a big industry which uses average selling prices. In the smartphone market, the average selling price indicates how much money a handset manufacturer is receiving on average for the phones that it sells.

For product-driven companies like Apple, calculations for average selling price provide pivotal information about its financial performance and, by extension, the performance of its stock price. In fact, there’s a clear relationship between Apple’s iPhone ASP and its stock price movements.

The iPhone’s ASP matters even more when considering how each device drives overall profitability for Apple. Apple consolidates its operations under a single profit-and-loss statement (P&L), meaning investors can’t tell how costs, such as marketing and research and development (R&D) are spread among the company’s various products.

Since the iPhone has the highest gross margin in Apple’s device family, the device generates the lion’s share of Apple’s profits. That makes the iPhone crucial in determining Apple’s overall financial performance each quarter.

Examples of Average Selling Price

The term average selling price has a place in the housing market. When the average selling price of a home within a particular region rises, this may be a signal of a booming market. Conversely, when the average price drops, so does the perception of the market in that particular area.

Some industries use ASP in a slightly different way. The hospitality industry—especially hotels and other lodging companies—commonly refers to it as the average room or average daily rate. These average rates tend to be higher during peak seasons, while rates normally drop when travel seems to be low or during off-seasons.

What Is After-Hours Trading?

After-hours trading is securities trading that starts at 4 p.m. U.S. Eastern Time after the major U.S. stock exchanges close. The after-hours trading session can run as late as 8 p.m., though volume typically thins out much earlier in the session. Trading in the after hours is conducted through electronic communication networks (ECNs).

Understanding After-Hours Trading

Traders and investors engage in after-hours trading for a variety of reasons. They may prefer trading with fewer market participants or their schedules may require it. They may want to take positions as a result of news that breaks after the close of the stock exchange. Or, they may want to close out a position before they leave on vacation.

Generally, after-hours trading refers to trading that takes place after normal market hours and up until about 8 pm. Premarket trading refers to trading that takes place before the start of normal market hours, generally from 7 a.m. until 9:25 a.m. Together, after-hours trading and premarket trading are referred to as extended-hours trading.

The precise times of extended-hours trading can depend on the ECN an investor uses or the financial institution where they place their orders. For instance, Wells Fargo allows after-hours trading from 4:05 p.m. ET until just 5 p.m.

Electronic markets (or ECNs) used in after-hours trading automatically attempt to match up buy and sell orders. If they can do so, trades are completed. If they can’t, trades remain unfilled.

After-hours trading typically only allows limit orders to buy, sell, or short, although a particular brokerage may be less restrictive. No stop, stop-limit, or orders with special instructions (such as fill or kill or all or none) are accepted. Moreover, orders are normally only good for the after-hours trading session in which they’re placed.

The maximum share amount per order is 25,000.

Quotes provided are limited to those available through the electronic market used. Investors may have access to other participating ECNs but it isn’t guaranteed.

Volume

In after-hours trading, the trading volume for a stock may spike on the initial release of news but most of the time thins out as the session progresses. The growth of volume generally slows significantly by 6 p.m. So, there is a substantial risk that investors will be trading illiquid stocks after-hours. 

Price

Not only does volume sometimes come at a premium in the after-hours trading sessions, so does price. It is not unusual for the spreads to be wide in the after-hours. The spread is the difference between the bid and the ask prices. Due to fewer shares trading, the spread may be significantly wider than during the normal trading session.

Participation

If liquidity and prices weren’t enough to make after-hours trading risky, the lack of participants may do the trick. That’s why certain investors and institutions may choose not to participate in after-hours trading, regardless of news or events.

It’s quite possible for a stock to fall sharply in the after hours only to rise once the regular trading session resumes the next day at 9:30 a.m. Many big institutional investors have a certain view of price action during after-hours trading sessions and express that view with their trades once the regular market re-opens.

Since volume is thin and spreads are wide in after-hours trading, it is much easier to push prices higher or lower. Fewer shares and trades are needed to make a substantial impact on a stock’s price. That’s why after-hours orders usually are restricted to limit orders. If your brokerage doesn’t restrict them, consider them anyway as a means to protect yourself from unexpected price swings and order fills.

Standard Trading vs. After-Hours Trading

What Is 52-Week High/Low?

The 52-week high/low is the highest and lowest price at which a security, such as a stock, has traded during the time period that equates to one year.

Understanding the 52-Week High/Low

A 52-week high/low is a technical indicator used by some traders and investors who view these figures as an important factor in the analysis of a stock’s current value and as a predictor of its future price movement. An investor may show increased interest in a particular stock as its price nears either the high or the low end of its 52-week price range (the range that exists between the 52-week low and the 52-week high).

The 52-week high/low is based on the daily closing price for the security. Often, a stock may actually breach a 52-week high intraday, but end up closing below the previous 52-week high, thereby going unrecognized. The same applies when a stock makes a new 52-week low during a trading session but fails to close at a new 52-week low. In these cases, the failure to register as having made a new closing 52-week high/low can be very significant.

One way that the 52-week high/low figure is used is to help determine an entry or exit point for a given stock. For example, stock traders may buy a stock when the price exceeds its 52-week high, or sell when the price falls below its 52-week low. The rationale behind this strategy is that if a price breaks out from its 52-week range (either above or below that range), there must be some factor that generated enough momentum to continue the price movement in the same direction. When using this strategy, an investor may utilize stop-orders to initiate new positions or add on to existing positions.

It is not uncommon for the volume of trading of a given stock to spike once it crosses a 52-week barrier. In fact, research has demonstrated this. According to a study called “Volume and Price Patterns Around a Stock’s 52-Week Highs and Lows: Theory and Evidence,” conducted by economists at Pennsylvania State University, the University of North Carolina at Chapel Hill, and the University of California, Davis in 2008, small stocks crossing their 52-week highs produced 0.6275% excess gains in the following week. Correspondingly, large stocks produced gains of 0.1795% in the following week. Over time, however, the effect of 52-week highs (and lows) became more pronounced for large stocks. On an overall basis, however, these trading ranges had more of an effect on small stocks as opposed to large stocks.

52-Week High/Low Reversals

A stock that reaches a 52-week high intraday, but closes negative on the same day, may have topped out. This means that its price may not go much higher in the near term. This can be determined if it forms a daily shooting star, which occurs when a security trades significantly higher than its opening, but declines later in the day to close either below or near its opening price. Often, professionals, and institutions, use 52-week highs as a way of setting take-profit orders as a way of locking in gains. They may also use 52-week lows to determine stop-loss levels as a way to limit their losses.

Given the upward bias inherent in the stock markets, a 52-week high represents bullish sentiment in the market. There are usually plenty of investors prepared to give up some further price appreciation in order to lock in some or all of their gains. Stocks making new 52-week highs are often the most susceptible to profit taking, resulting in pullbacks and trend reversals.

Similarly, when a stock makes a new 52-week low intra-day but fails to register a new closing 52-week low, it may be a sign of a bottom. This can be determined if it forms a daily hammer candlestick, which occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or near its opening price. This can trigger short-sellers to start buying to cover their positions, and can also encourage bargain hunters to start making moves. Stocks that make five consecutive daily 52-week lows are most susceptible to seeing strong bounces when a daily hammer forms.

52-Week High/Low Example

Suppose that stock ABC trades at a peak of $100 and a low of $75 in a year. Then its 52-week high/low price is $100 and $75. Typically, $100 is considered a resistance level while $75 is considered a support level. This means that traders will begin selling the stock once it reaches that level and they will begin purchasing it once it reaches $75. If it does breach either end of the range conclusively, then traders will initiate new long or short positions, depending on whether the 52-week high or 52-week low was breached.

What Is an Acquisition Premium?

An acquisition premium is a figure that’s the difference between the estimated real value of a company and the actual price paid to acquire it. An acquisition premium represents the increased cost of buying a target company during a merger and acquisition (M&A) transaction.

There is no requirement that a company pay a premium for acquiring another company; in fact, depending on the situation, it may even get a discount.

Understanding Acquisition Premiums

In an M&A scenario, the company that pays to acquire another company is known as the acquirer, and the company to be purchased or acquired is referred to as the target firm.

Reasons For Paying An Acquisition Premium

Typically, an acquiring company will pay an acquisition premium to close a deal and ward off competition. An acquisition premium might be paid, too, if the acquirer believes that the synergy created from the acquisition will be greater than the total cost of acquiring the target company. The size of the premium often depends on various factors such as competition within the industry, the presence of other bidders, and the motivations of the buyer and seller.

How Does An Acquisition Premium Work?

When a company decides that it wants to acquire another firm, it will first attempt to estimate the real value of the target company. For example, the enterprise value of Macy’s, using data from its 2017 10-K report, is estimated at $11.81 billion. After the acquiring company determines the real value of its target, it decides how much it is willing to pay on top of the real value so as to present an attractive deal to the target firm, especially if there are other firms that are considering an acquisition.

In the example above an acquirer may decide to pay a 20% premium to buy Macy’s. Thus, the total cost it will propose would be $11.81 billion x 1.2 = $14.17 billion. If this premium offer is accepted, then the acquisition premium value will be $14.17 billion – $11.81 billion = $2.36 billion, or in percentage form, 20%.

Arriving at the Acquisition Premium

You also may use a target company’s share price to arrive at the acquisition premium. For instance, if Macy’s is currently trading at $26 per share, and an acquirer is willing to pay $33 per share for the target company’s outstanding shares, then you may calculate the acquisition premium as ($33 – $26)/$26 = 27%.

Using our price-per-share example, let’s assume that there was no premium offer on the table and the agreed-upon acquisition cost was $26 per share. If the value of the company drops to $16 before the acquisition becomes final, the acquirer will find itself paying a premium of ($26 – $16)/$16 = 62.5%.

Acquisition Premiums in Financial Accounting

In financial accounting, the acquisition premium is known as goodwill—the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process. The acquiring company records goodwill as a separate account on its balance sheet.

Goodwill factors in intangible assets like the value of a target company’s brand, solid customer base, good customer relations, healthy employee relations, and any patents or proprietary technology acquired from the target company. An adverse event, such as declining cash flows, economic depression, increased competitive environment and the like can lead to an impairment of goodwill, which occurs when the market value of the target company’s intangible assets drops below its acquisition cost. Any impairment results in a decrease in goodwill on the balance sheet and shows as a loss on the income statement.

An acquirer can purchase a target company for a discount, that is, for less than its fair value. When this occurs, negative goodwill is recognized.