Reporting season can make the share market look ridiculous.
A company reports rising revenue and profit, only for its share price to sink. Another company remains unprofitable, yet its share price rockets higher.
These reactions can appear irrational. However, they make more sense once investors understand that the market is not simply grading the result.
It is grading the surprise.
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A voting machine and a weighing machine
Benjamin Graham, the investor and author who mentored Warren Buffett, famously said:
"In the short run, the market is a voting machine, but in the long run, it is a weighing machine."
Reporting season provides a perfect demonstration.
In the short term, investors are voting on whether a result was better or worse than expected. Those expectations have been shaped by broker forecasts, company guidance, industry conditions, and the narrative surrounding the business.
If a company reports a $50 million loss when analysts feared a $100 million loss, its shares could rise sharply. The business still lost money, but the result was better than expected.
Meanwhile, a company might increase revenue by 20%, only to see its share price tumble because the market expected 30% growth, margins contracted, or management issued a weaker outlook.
The number matters, but the gap between the number and expectations often matters more on the day.
Codan shares jump on strong results
Codan Ltd (ASX: CDA) shares closed more than 12% higher after the technology company released its FY26 results.
Codan reported a 30% increase in revenue to $875 million and a 69% rise in net profit after tax to $175.2 million. Its full-year dividend increased by 70% to 48.5 cents per share.
Importantly, Codan also said its communications division had entered FY27 strongly. That forward-looking commentary gave investors new information to weigh, despite Codan having already upgraded its FY26 profit guidance in April.
Zoom out further and the relationship becomes clearer. Codan shares have more than doubled over the past 12 months while the company's revenue, profit margins, and earnings have risen strongly.
The daily jump was a vote on the latest result and outlook. The longer-term rise increasingly reflects the growing weight of the business.
Why IDP Education shares crashed
IDP Education Ltd (ASX: IEL) provided the other side of the lesson.
Its shares closed more than 20% lower following the release of the company's FY26 results.
IDP reported adjusted operating earnings (EBITDA) of $122.9 million, within the guidance range provided earlier in the year. The company also produced strong cash conversion and reduced its overhead cost base by more than originally targeted.
However, the market was more interested in what came next.
Looking ahead, IDP expects challenging market conditions to persist in FY27, with tightening migration and student visa policies likely to weigh on volumes for a third year.
IDP shares are now down around 64% over the past 12 months. Over that period, the company's revenue and profits have fallen steeply.
Again, the one-day move was a vote on expectations. The longer decline has increasingly weighed the deterioration in earnings.
Foolish takeaway
Reporting-day volatility should not be ignored, but it should be interpreted in context.
The first question is what the market expected. The second is what has genuinely changed. The third is whether that change matters to the company's earnings power several years from now.
Investors can then examine the outlook, margins, cash flow, competitive position, and management's capital allocation. These factors usually matter far more than whether a company narrowly beat or missed a broker forecast.
Sometimes a violent share price move signals a genuine structural change. Other times, it is simply a reaction to expectations that were too optimistic or pessimistic.
That distinction is why short-term market timing is so difficult. Investors must correctly predict the result, what everyone else expected, and how the market will react to the difference.
Over longer periods, much of that noise fades. Share prices may still wander, but earnings, cash flow, and business quality gradually place more weight on the scales.
