As ASX earnings season unfolds, check out 4 key stock investing tips

Highlights

  • An earnings season is closely tracked by analysts, investors, and traders to get a clue how a particular company has performed recently and what’s expected going ahead.
  • Quarterly and yearly financial results of publicly traded companies include profit, revenue, EBITDA, and other key information.
  • It helps investors and traders to develop investing and trading strategies for that particular company.

An earnings season is closely tracked by analysts, investors, and traders to get a clue about how a particular company has performed recently and what’s expected of it going ahead. Quarterly and yearly financial results of publicly traded companies include profit, revenue, EBITDA, and other key information like guidance estimates.

It helps investors and traders to develop investing and trading strategies for that particular company. After the earnings are out, the stock prices go up and down, depending on how the company performed financially. Currently, several ASX-listed companies are announcing their Q1FY22 results.

Here are four key things to know while investing in stock markets during an earnings season:

Quarterly and yearly financial results of publicly traded companies include profit, revenue, EBITDA, and other key information.

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Track brokerage reports

Experts always advise to keep a track of different brokerage reports since these carry forecasts on how a company is expected to perform in a given quarter. After the results have been announced, analysts at these brokerages also evaluate the performance of the company based on forecasting models and other fundamentals. Even as forecasts differ from analyst to analyst, it’s advised to keep track to get a better grasp on market developments during the earnings season.

Stock price and market expectations

The most critical thing that investors and traders look for after the financial results is whether the company’s numbers have beaten market expectations or not. The company whose earnings were higher than the market expectations will see its shares surge and vice versa.

It is generally believed that a company which has a track record of continuously beating market expectations has some advantages over others. On the other hand, a company with a performance below market expectations is riddled with some problems.

Look for extended data 

It’s not wise to just rely on one-quarter earnings while buying or selling stocks. Single quarter earnings generally don’t provide a complete idea about how the company has performed. Instead, investors should look for long-term numbers and then only make an informed opinion on the stock. Generally, volatility seen after quarterly earnings are released is short term in nature. It is better to focus on a company’s averages sales and earnings per share (EPS) growth over the quarters.

Factors affecting performance 

Experts say that investors and traders should not overly focus on why a company missed market estimates. It is more of a function of the estimate compared to its performance in the given quarter. On top of that, selling a stock just because the company has missed expectations makes little sense. It’s more prudent to track closely why it missed the target.

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