The Markets can be a harsh mistress at times, moving against all rationale at the drop of a hat. Whilst this can be frustrating, it can also provide opportunities for the astute investor. Especially one who has done their homework.
Earnings season can often produce some of the most irrational market action. All because analysts and investors were too busy trying to rationalise the expected results before they are released to the market. With so many variables involved in reporting earnings to the market, more often than not, the results are far, far from consensus estimates.
In today’s example, we will look at Computershare. A stock originally brought to my attention through the DividendKey. Computershare is the largest provider of investor services in the world, operating in over 20 countries and servicing more than 30,000 clients. If you own a portfolio of shares, then most likely you will have dealt with Computershare either directly or indirectly. At the time of writing, Computershare is the latest of a string of companies to report earnings results, only to be sold off by more than 10% upon announcement of full-year results. Let’s take a closer look:
- Earnings rise 15% for the 2009/2010 financial year
- Total Revenue rises 6.9% to US $1.60 billion
- Full-year net profit rises to US$294.8 million, from US$255.7 million a year prior
- Computershare pays full-year dividend of 14 cents, up from 11 cents the year prior
All things being equal, one would expect this kind of result to yield a spectacular reaction from the market. There was one point in the earnings statement which caused the exact opposite. Management stated that the group is lacking ‘material acquisitions’ to boost earnings for the year ahead. In short, earnings for the year ahead, may not reach the dizzying heights of years prior.
No mention of a tightening of purse strings or a negative outlook over the longer term (in excess of one year). In fact, we saw quite the opposite. Dividend payments rose for the year by a massive 27%! Does this sound like the actions of a company in trouble? I think not.
Those of you who own ValueGain or have completed the DividendKey course, will have seen Computershare appear on pre-computed scanning lists several times over the past few years. ValueGain is extremely useful when looking for a practical view of the fundamentals of any company, whilst maintaining the capabilities to scan based on specific criteria.
Earnings growth for Computershare is excellent and Dividends continue to grow. They are an ideal income stock and one which based on fundamentals, is worth adding to any long-term portfolio.
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When buying a stock for a long-term portfolio, one is not interested what a company expects for the months or even year ahead. As students of the DividendKey will know, when we choose a stock for our long-term portfolio, we are buying a company. We are buying that company based on its strong historical fundamentals and its expected future performance.
One can be sure that whilst the months ahead may not be as profitable as those prior, Computershare is an industry leader and a powerhouse in the Investor Services industry. All things being equal, in years to come, today will simply be blip on the radar of a very successful long-term performance. Don’t take my word for it, enrol in the DividendKey today and learn how you too can construct a rock-solid Income portfolio and secure a prosperous, low-risk financial future.