Criterion: Rollercoaster price movements are now part of the profit-reporting landscape

The February profit-reporting season has been marked by wild share movements – both up and down – and often unrelated to the numbers.

The February earnings season has given investors a wild ride. Pic via Getty ImagesThe February profit-reporting season has been marked by wild share movements – both up and down – and often unrelated to the numbers.

• The February profit reporting season has delivered wild share price swings – both up and down

• The market’s reaction often has been disproportionate to the presented numbers

• Despite downbeat commentary, industrial earnings are expected to post healthy rises, but the banks could prove a drag

The just-concluded corporate profit-reporting season has usurped Isaac Newton’s law of physics that for every action there is an equal and opposite reaction.

The earnings jamboree was characterised by wild share price movements often out of whack with the presented financials, or outlook prognostications.

In many cases simply-as-expected results were not good enough – and elephant stamps were hard to earn.

That’s despite the market setting a low bar after August’s swag of results, on unfounded fears of an economic downturn.

The topsy-turvy reactions have been evident in past result seasons, but have been further exaggerated this time around.

When no natural disasters are a disaster

For instance, shares in building company Johns Lyng Group (ASX:JLG) cratered 30% after the insurance repairer downgraded full year earnings by about 5%.

In perversely negative news, there’s been a dearth of natural disasters to sustain the company's order book.

Servo shares out of gas

Shares in servo owner Viva Energy (ASX:VEA) tanked 23%, partly because of soft contribution from its acquired OTR chain and partly because illegal tobacco is hurting sales.

Healthcare misses

On Monday, wound care house PolyNovo (ASX:PNV) posted a 24% profit increase to a record $3.33 million – and the shares fell 8% because of … hard to say.

Early in the season, Cochlear's (ASX:COH) workmanlike 7% profit increase was greeted with a 14% sell off, on soft sales of its next-generation sound processor.

But it wasn't all gloom: shares in sterilisation device maker Nanosonics (ASX:NAN) surged 23%, even though the company had already provided earnings and profit guidance.

... but A2 udderly delights

While the horror sell-down capture the headlines, there were pleasant surprises as well. Shares in fancy cow juice mob A2 Milk (ASX:A2M) soared 31% after management tweaked full-year revenue growth from “low to mid double digits” from “mid to high single digits”.

Shares in car dealer Eagers Automotive (ASX:APE) motored along by 16% despite a 25% decline in reported profit.

One fund manager opines there are “more dumb speculators out there”.

More learnedly, UBS describes a “largely structural shift which investors will be forced to navigate".

The firm attributes the change in market behaviour to multiple forces, including the weight of passive money on the sidelines, decreasing liquidity and ‘stale’ earnings estimates.

The latter refers to companies that have not been ‘touched’ by analysts for some time.

For instance, ferry and bus operator Kelsian Group's (ASX:KLS) forecasts were last revised about three months ago. Its results didn’t float investor boats and the stock sunk 15%.

Market is 'overcooked'

The simple explanation is that the market has been overvalued for some time, which means there is little margin for error.

Morgan Stanley reckons the ASX200 is trading on multiple of 18 times, compared with the long-run average of 14.7 times.

The firm says investors were more forgiving last year, with ‘as expected’ results – and even slight misses -  deemed to be good enough.

But as we said, industrial results really weren’t that shabby.

UBS says twice as many companies delivered earnings ‘beats’ as those who disappointed, with dividends ‘beats’ outnumbering ‘misses’ by three to two.

If there was a clear loser, it was the bank sector – notably Bendigo and Adelaide Bank's (ASX:BEN) stinker that sent the shares 15% lower.

Itsa notsa bad

Morgan Stanley says that on analysts’ consensus estimates, the ASX200 stocks should grow earning per share by 7.9% on the current financial year and 6.4% in 2026-27.

Macquarie Equities has factored in a 6% current year gain for the whole market, but this increases to a lusty 12% when the banks and resource stocks are excluded.

The miners are tipped for a 17% earnings fall, pending more “commodity-intensive stimulus” from Beijing and resolution of the Trump tariff wars.

But overall, in the words of Joe Dolce: "itsa notsa bad".

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.

Originally published as Criterion: Rollercoaster price movements are now part of the profit-reporting landscape