What is a Sandbag?
Sandbag is slang for lowering expectations.
How Does a Sandbag Work?
Let's say John Doe is a new employee at Company XYZ. He gets invited to the annual company golf outing. The other employees ask him how his game is. John says, 'I'm ok.' John, however, has actually had golf lessons since he was a child and plays every weekend. John is sandbagging.
Why Does a Sandbag Matter?
In the world of finance, the mantra is 'underpromise and overdeliver,' meaning that when you keep investors' expectations low, it's easier to make them happy. In turn, sandbagging can help elevate or at least maintain a stock price when companies report earnings. Companies sandbag by providing earnings guidance to analysts that is below what they actually think will occur.
Sandbagging isn't easy to maintain, however. Once analysts notice that companies consistently outdo their earnings guidance, they will start raising their expectations regardless of what the company guidance is.