Earnings season is always hotly anticipated. This half-yearly beauty contest provides long-term investors the opportunity to overreact to short-term results while traders try and profit from guessing the direction of this overreaction.

In the most recent iteration of earnings season the market responded positively with the ASX 200 up just under 2% over the last month. If there was a theme to the most recent earnings seasons it may have been volatility. We saw several ASX names move meaningfully up or down after reporting earnings. Below are the one week most positive and negative returns after earnings for ASX shares under our coverage universe. 

Week 1 

Week one moves

Week 2

Week 2 ASX movers

Week 3

Week three ASX movers

At Morningstar, our analysts pay close attention to earnings, but the focus is on long-term results and valuations. A single earnings report usually doesn’t lead to a change in the long-term assumptions behind our assessment of a stock’s fair value, unless a company provides new material information that changes our long-term assumptions. For example, new data on a drug that raises the probability of approval, or pricing gains in a key product line could affect an analyst’s long-run thinking.

The paradox of being an investor is that the only thing that matters is what a company achieves in the future. Yet all the information we have is historic. Many investors, including the surge of new market participants since 2020, place outsized importance on earnings season as it shows how companies, and their investments, performed. Although interesting, it defeats the purpose of investing, as we should not place undo emphasis on what happened in the past. Our focus should remain on the future.

At Morningstar, we believe the real opportunities for investors occur when the short-term reaction to an earnings announcement is not in line with the long-term value of a company. Changes to our fair value estimates for a company can provide context to price movements. Our practical guide to finding investment opportunities outlines what investors should look for when evaluating a company.

The first step to understanding whether there is an opportunity is to understand how to value a company. Our two part series (Part 1 and 2) on the art and science of valuing stocks runs investors through the steps to valuing companies.

Considerations during earnings seasons

Does earnings season matter? Investors are fixated on reporting season but a long-term orientation means looking for value beyond the headlines.

Earnings season is a time where business results create the clearest connection to stocks being a business and not just a nebulous concept. As owners in these businesses, it is crucial to adopt an ownership mentality. Many investors however ignore the risks of businesses in their portfolio. Mark LaMonica explores the impact of high business risk in your portfolio.

Here’s a roundup of our earnings season coverage:

  • The future of Coles COL and Woolworths WOW
  • Life360 360 – the shares jumped 40%. Are they still an attractive opportunity?
  • Ansell ANN is poised for growth.
  • Cochlear COH – earnings are growing rapidly but are the shares a bargain?
  • ASX Ltd. ASX – we raise our fair value after earnings as we continue to see improvements on margins.
  • AMP – the turnaround is continuing for AMP.
  • CBA CBA – Our banking analyst, Nathan Zaia opines on the CBA earnings result.
  • Aurizon AZJ – an income play that has reported a strong first half, with our analysts expecting increased cash payments to shareholders in the years ahead.
  • What did Morningstar subscribers buy and sell during earnings season? Woodside WDS, CSL Ltd CSL and Betashares Nasdaq 100 ETF NDQ topped the buy list. We discuss what our analysts think about the shares and ETF, including earnings season commentary for the shares.
  • Earnings season wrap up for the retailers, with two retailers looking expensive to our analysts.