Reporting season is over and it was a very interesting one. Here are some of my takeaways from it:
Most blue chips were disappointing
Australia’s share market index is dominated by the big four banks like Commonwealth Bank of Australia (ASX: CBA), resource businesses like BHP Billiton Limited (ASX: BHP), retailers such as Wesfarmers Ltd (ASX: WES) and a few others.
However, sadly, most of those blue-chip businesses delivered (at-best) low growth and some revealed profit contraction.
Result seasons like the one that just occurred re-iterate my belief that holding Australian ‘blue-chips’ and portfolios heavily weighted to them is a poor decision in the current environment.
There were a couple of highlights like CSL Limited (ASX: CSL) that show what re-investing into the business – instead of huge dividends – and what decent international expansion can do.
Hot gets hotter
However, the share price growth response was even more incredible considering the already-high valuations.
There is a lot of capital looking for a home in Australia and it seems this reporting season has sent even more of it to ASX technology businesses. Maybe in a year from now those valuations will seem less extreme?
Decent growth is key
Any business that is predicting profit growth of less than 10% over the coming year seems to have been punished by the market. It’s true to say that rising interest rates should hurt valuations, however interest rates are still low and haven’t moved too much in the grand scheme of things.
One thing is for sure – many quality Australian businesses are now trading lower despite revealing higher profits and expectations for more growth in the coming years.
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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Altium and WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.