Know how to use reporting season figures, says Hyperion
Many investors take reporting season figures at their face value - which could lead to missed opportunities, according to Hyperion Asset Management CIO, Mark Arnold.
According to Arnold, when assessing whether or how a results announcement should affect investment decisions, the key question is not to look at the numbers per se, but at how 'value relevant’ the information is - determining whether the announcement alters the forecast timing and magnitude of a company’s free cash flow over the long term.
“If reported profit and other related information does not change these factors, then there is no reason for the profit result to have any impact on the valuation of the company or its share price,” Arnold said.
“And it’s important not to forget that looking at results over a number of years can really add value in terms of extra information.”
He added investors should be wary of using short-term, discrete earnings results as the only - or the key - indicator of a quality company.
“Sometimes the market can become too focused on short-term or cyclical factors,” Arnold said.
“Look at the massive sell-off of Seek Ltd shares during 2008 and 2009 due to concerns about rising unemployment as just one example.”
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