It’s reporting season once again, and it’s very interesting to keep an eye on which companies report profits, and of course, which have experienced losses.
This week we saw two of Australia's most important and iconic companies post their profit results for 2010-11, and both cited the AUD’s strength as a factor behind their gains.
Yet, the similarities end starkly there. Qantas reported $260m in profits, yet this seemed positively puny compared to industry megalith BHP Billiton who reported a staggering and record profit of more than $23bn.
Earnings season is a fundamental time in any investor’s calendar, and serious stock market investors should closely observe the reports of each and every stock they hold – and while you’re at it, keep an eye out for potential buys.
Some small scale investors head into earnings season unsure of exactly what they should be doing. The knee-jerk reaction for some may be to buy-buy-BUY! However, there is much more to buying shares in companies posting profits than meets the eye.
Sometimes stocks fall in price after reporting profits, while others rise on sub-standard results.
Indeed despite doubling its earnings from last year, CEO Alan Joyce said of Qantas this week “The current share price is quite frankly disappointing. It does not however reflect the full value of our business today and the high potential for tomorrow.”
Likewise, BHP’s share price has also experienced unimpressive gains since its profits announcement.
The upshot?
We’ve all seen the headlines: companies have been doing it very tough of late due to generally slow moving business conditions and tensions in the global market.
Many investors try to achieve double-digit returns by randomly choosing fast-moving shares, blindly following trends and generally taking on too much risk. When we don't quickly earn double-digit returns it’s disappointment all round; when we lose money we are mortified.
A word of caution lies behind resource stocks that may be too highly leveraged, especially given the current climate in the manufacturing industry. The market may indeed correct resource stocks whose outlook statements have reflected more subdued conditions.
Dabbling a little or a lot in the share market can be a volatile game. If you think it’s possible to make overnight gains after profit announcements, though it can happen, think carefully and cautiously before entering the still recovering market and seek professional advice before shaking up your portfolio.