How is it that when a company cuts jobs, the share price for that companies stock drops?

It seems that if a company is willing to cut jobs, they've guaranteed a better financial standing for themselves. Why would we be less willing to pay a premium price? Assuming the company wasn't in extreme trouble to begin with anyhow.

How is it that when a company cuts jobs, the share price for that companies stock drops?
Shows instability in the company
Reply:It can go either way. If they layoff people because business is slow to preserve the bottom line and they dont need them it can drop. Or it can be to cut costs to improve the bottom line even though business be ok.
Reply:It doesn't always. Depends on the street's perception of the reasons for the cuts.
Reply:It's a red flag to investors because healthy companies don't cut jobs...
Reply:Contrary to common sense, it actually costs a company money to cut jobs, at least in the short term. It's the same with closing plants. It costs money to close them down. If a company is cutting jobs or closing plants then they are effectively saying that the next couple of quarters will have tighter margins and lower earnings. Still, sometimes cutting jobs can be taken as a positive. If cost cutting is essential to the long term health of the company, and isn't just a response to weakening revenues. If you're cutting jobs because revenues are declining, that's bad. Fewer employees won't equate to more revenue. If revenues are good, but you're simply cutting jobs to grow margins, that can be good.