Since we're in earnings season I thought I would expand a bit on the topic of watching for opportunities as companies report their quarterly results. I've talked quite often about looking for opportunities with stocks that have been hammered even after a good report. Today I thought it'd be a half-decent idea to discuss the situation of when a stock you're watching shoots up after releasing earnings. This situation is pretty common and can make life very frustrating for bargain hunters or people who just want to buy in at a good level.

For me, Dawson Geophysical is a great, recent example. The stock was trading at levels it hadn't seen (from a valuation standpoint) for years, the company was doing great, but of course I did not have the cash in my account to jump forward with opening a position. For someone like me who has an unpredictable flow of cash to use for investing, it makes the situation all the more frustrating. Dawson reported its earnings just a little more than a week ago. As you could probably guess from the context of this example, it was an exceptionally good report that beat estimates and gave Mr. Market a good amount of more confidence in the company. The next day the stock rocketed from the low $50s to more than $60 per share. After kicking myself for awhile, I decided to take another look at the valuation. To my surprise, the valuation remained quite attractive historically. Even though the stock had shot up, the valuation had not significantly changed. So despite the higher share price, Dawson remains high on my watch list.

A very recent example is Hansen (not again...). Yesterday the company released a solid earnings report and today the stock was up 7%. I've been buying shares in Hansen since 2006 so I can't exactly complain about the rise in share price, but this is another similar situation to Dawson. Hansen's P/E sits at approximately 13.5, still well below the competition and the industry average despite the company's stronger growth, bottom line margins, and balance sheet. A higher share price should not scare away interested investors. While the share price may seem important, the valuation is what's key.

This is certainly not earth shattering advice. And I can't say I've always followed this "advice" either, but I like to think that I'm learning from experience. In my experience, earnings season brings a lot of emotion to the table for investors. What I am saying is to not let those emotions get in the way of following a good business because the stock shot up 20% after a good earnings report. All too often I've completely dismissed a company after seeing its stock rise only to miss on what was still a great opportunity. Basically, the moral is this: don't let a higher share price take your attention off the valuation. The same could be said for stocks that have been hit. Just because the stock was hit does not mean it is automatically a smart investment. The one thing predictable about individual stocks is that they will be volatile. Keep your eye on the valuation, stay strong through the volatility, and in the long run the ride will be a lot of fun.