Make ASX reporting season easy: Buy winners, sell losers

Companies that exceed earnings forecasts have delivered average gains of 5.2% on results day alone, with momentum typically extending well beyond the initial announcement, according to Bell Potter's Richard Coppleson. These "winners" have continued their outperformance, gaining an additional 6.7% over the following four months.

The power of positive surprises

"Buy the stocks that are up on day one or more importantly, resist the urge to sell after a significant upside move, as shorts will likely cover in the weeks ahead," says Coppleson.

This strategy capitalises on a well-documented market phenomenon where positive earnings surprises create sustained momentum. The initial rally often attracts additional buying interest as short sellers scramble to cover positions, momentum investors pile in, and analysts upgrade their ratings/target prices.

Missing expectations

Rather than bouncing, these underperformers continue to lag, falling an additional 8.4% over the subsequent four months. This extended decline challenges the common investor hope that it'll bounce back from oversold conditions or its newfound 'cheap' valuation.

Why the pain persists

This reset creates further selling pressure as institutional investors adjust their holdings based on the new, lower price targets and reduced growth expectations.

The narrative shift

But a financial result injects fresh, company-specific information that can dramatically alter a stock's trajectory. This new data forces a reassessment of analyst estimates, investor perceptions, and the company's competitive positioning.

The result is often a sharp re-rating that can unfold over days or weeks as market participants – from day traders to long-term fund managers – digest the implications of the results and adjust their positions accordingly.

Recent examples

The stock was trading around three-and-a-half-year lows, weighed down by successive earnings downgrades and challenging macroeconomic conditions. However, a powerful 23% rally over four weeks was driven by two key catalysts:

10 June: Metcash provided FY25 underlying profit guidance of $273-277 million, beating $272 million consensus, and announced plans to merge its Independent Hardware Group and Total Tools operations into a single Hardware division. The stock jumped 3.5% that day and continued rallying another 5.5% over the following eight sessions.

23 June: The company delivered FY25 results at the upper end of guidance, including underlying NPAT of $275.5 million. The Board declared a final dividend of 9.5 cents per share, beating UBS estimates of 8.9 cents by 6.7%. Management also provided an encouraging FY26 trading update, with group sales accelerating to 4.7% growth over the first seven weeks.

This sequence highlights a classic re-rating story after prolonged sideways movement, underpinned by better-than-expected results, a higher dividend, and positive early momentum into FY26. The stock's 200-day moving average has turned upward for the first time since early 2022, recently flashing a golden cross as the 50-day crossed above the 200-day.

Hansen Technologies (ASX: HSN) provides another example, upgrading FY25 cash EBITDA guidance to $92-94 million from $76-85 million previously (up 15.5% at the midpoint) and underlying EBITDA margin to 28% versus Morgan Stanley's 24.4% estimate. The stock surged 9.0% on announcement day (14 July) and has gained another 14% since.

Strategy for investors

• Winners tend to keep winning: Companies that beat expectations on results day often continue outperforming for months, making them attractive momentum plays.
• Losers face extended pain: Missing expectations typically signals deeper issues that take time to resolve, making these stocks worth avoiding even if they appear oversold.
• Timing matters: The initial market reaction often correctly identifies which companies have genuine fundamental momentum versus those facing headwinds.