Which shares to watch this ASX earnings season

ASX companies are due to report their full year results this month. It is the first ASX earnings season since the onset of the coronavirus pandemic and will reveal the financial damage wrought by the virus thus far.

The S&P/ASX 200 Index (ASX: XJO) ended July lower as investors looked toward the August earnings season with trepidation. Share prices bounced back strongly from their slump in March at the start of the pandemic impact, with the ASX 200 up 29.7% from its March low.

But ASX share prices need to be supported by earnings. And earnings are likely to have taken a hit for a number of companies. Here's what we're looking out for this ASX earnings season. 

ASX earnings season surprises and shocks 

The sudden and unexpected onset of the pandemic hit many businesses unprepared – this ASX earnings season will be unique in terms of the impact of the pandemic on shares.

While some businesses saw sales drop sharply, others (especially those leveraged to ecommerce) saw a rise in sales. Many companies withdrew earnings guidance at the onset of the pandemic. Six months in, the effects on both FY20 results and future guidance on ASX shares should be much clearer.

Future earnings are key

The price of a share should, theoretically, be the present value of the future cash flow expected from that share. Because of this, expected future earnings are often a much more important influence on the share price than current earnings.

The onset of the pandemic caused a one-off economic shock, but what ASX share investors want to know is what the future looks like. The ongoing impacts of the pandemic mean some companies will need to shift or pivot strategy. Given the turbulent six months investors have endured, they will be looking for some comfort in future earnings guidance. 

While the pandemic has obviously had a severe negative impact on  travel shares such as Webjet Limited (ASX: WEB) and Flight Centre Travel Group Ltd (ASX: FLT), it has actually had a positive impact on other ASX shares.

ASX earnings season winners

Lockdowns have accelerated the shift to online shopping, working, and living. This has resulted in booming sales for the likes of Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW).

Life in a COVID-19 world has also accelerated customer adoption of buy now pay later solutions like those operated by Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P).