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Should you buy ASX shares before or after reporting season?

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ASX reporting season is in full swing, with some of the most widely held shares like Wesfarmers Ltd (ASX: WES) and CSL Limited (ASX: CSL) releasing results this week. ASX shares can be highly volatile during the reporting season. This raises a few questions about buying and selling ASX shares during this time:

  1. Why do some ASX shares like Monadelphous Group Limited (ASX: MND) go up when they report earnings? And why do other ASX shares like Qantas Airways Limited (ASX: QAN) go down or stay flat?
  2. Should you buy or sell ASX shares before or after they report earnings?
  3. Should you care more about the results or the share price movements when making investment decisions?

Reporting season or expectations season?

Some ASX investors like to call reporting season “expectations season”. That’s because share price movements are mostly dictated by the difference between analyst expectations and actual results. This makes sense as institutional investors have billions of dollars to invest into the market.

This reporting season has been quite different to those previous. Because of the uncertainty surrounding the coronavirus pandemic, a lot of ASX shares withdrew their guidance earlier in the year. However, once these ASX shares had some more clarity on their liquidity and forecasts, many provided trading updates ahead of reporting season. This has meant that investors had significant visibility on some ASX shares’ results, but next to none on others.

Qantas is a perfect example of an ASX share that met expectations. Qantas produced an underlying profit before tax of $124 million for FY20. This was a huge 91% drop on the prior year. Despite this, the Qantas share price traded flat to close at $3.76 on Thursday.

Should you buy ASX shares before or after reporting season?

Buying before reporting season can provide great short-term gains, but also comes with the risk of quick losses. This strategy can be implemented if you believe that the markets’ (and analysts’) expectations are wrong. In other words, if you think you know something that very few others do.

Unless a company has pre-guided or released a recent trading update, my preference is to wait and see. As a long term buy-and-hold investor, a pop in the share price is nice but is not fundamental to my investment thesis or the business’ future.

Stick to the fundamentals during reporting season

Reporting season is exciting! I must admit to checking the share market and my portfolio daily during the month. But it is important to keep a long-term focus when investing in ASX shares. Analysing both a company’s results, as well as its earnings, is fundamental to understanding the long-term prospects and relative value of a business. 

If you have a portfolio of shares, this can be hard to do. My fellow Motley Fool writers do a great job of summarising and reporting all of the important information you should be reviewing in a timely manner.

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Lloyd Prout owns shares of Monadelphous Group Limited and expresses his own opinions. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Wesfarmers Limited. 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.

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