ASX Reporting season so far: Beware the fade

We’re approaching the second-half of reporting season, where the bulk of the S&P/ASX 200 reports.

Results so far have been relatively upbeat as lockdown restrictions began to ease last October, unemployment is at decade lows and monetary policy remains highly accommodative.

So far, of the 46 ASX companies tracked by FN Arena: 

• 52% beats 

• 33% in-line 

• 15% missed 

Despite most earnings coming ahead of expectations, many stocks are struggling to translate fundamental wins into share price gains.

Beware the fade

There have been countless stocks that have beat expectations, only to be sold into.

Some examples include (% change on the day of results): 

Credit Corp (ASX: CCP) 

First-half profits rose 8% to $45.7m versus $42.7m Bloomberg estimates. Top-line FY22 guidance upgraded slightly.

• Intraday high: 7%

• Close: 2.9%

• Next day: -6.4%

REA Group (ASX: REA) 

First-half profits up 31% to $226m versus Bell Potter and Citi estimates of $204m. REA said it experienced a wave of new listings amid a post-lockdown rebound.

• Intraday high: 5.5% 

• Close: -0.4% 

Temple & Webster (TPW) 

Record revenues and profits were achieved in the first-half, slightly ahead of Bloomberg estimates of $7.2m net profit.

The company said the second half of FY22 has started strongly, with year-on-year revenue growth of 26% in the first month.

• Intraday high: 16.4%

• Close: 9.7%

• Next day: -5.8%

Baby Bunting (ASX: BBN) 

Sales growth of 10% to $239.1m versus Morgans expectations of $231.5m. Baby Bunting expects to open another 2-3 stores in the second-half and potentially expand into the broader $5.1bn baby goods market, relative to its current $2.5bn addressable market.

• Intraday high: 2.2%

• Close: -3%

Why are my gains disappearing?

Markets hate uncertainty and the playing field continues to change amid rising geopolitical tensions and looming interest rate hikes.

Just as investors were getting comfortable with four 25 bps hikes from the Federal Reserve, the US delivers a hotter-than-expected 7.5% inflation reading in January.

Now, Goldman Sachs is forecasting 7 rate hikes by year-end. While CME's FedWatch Tool is expecting a 50% chance of a 50 bps hike in March.

Investors are now caught between 'these are great results, I'm looking forward to what's next' and 'maybe this is the best its going to get'.

The same results from the above companies, 12-months ago, might have witnessed a sharp re-rate towards the upside.

Instead, this bearish risk-off mood means that excellent results might only yield an ordinary share price reaction.