"We have come from an environment over the last three years where earnings growth has lifted by about 8 per cent per annum, and we are now facing earnings growth of 4 to 5 per cent per annum," said Rob Mercer, Forsyth Barr's head of private wealth research.
"We are seeing some cost pressures creeping in, and that's true globally as well," Mercer told the Herald.
Mercer said he felt that uncertainty arising out of the effects of the new government's policies and rising costs were not being priced into the market.
He also doubted the market was pricing in the likely effects of rapid changes in technology, and the positive and negative effects that can have on corporate earnings.
"There are so many different things that are changing at the moment - we will not know what their impact will be on profitability over the next 12 to 18 months," Mercer said.
"We are heading into a low earnings outlook where there is more uncertainty - the market is not pricing either one of those things," he said.
The market was overpaying, given that uncertainty.
"The market is definitely overvalued," Mercer said.
"It could be fairly valued but it's not obvious that the market is taking into account the earnings risk from rising costs, and it's definitely not pricing in the fact that we are heading into a period of lower earnings growth than we have historically," he said.
"So, intuitively, it's looking like the market is overpaying for both the level of growth that we expect and the level of uncertainty on companies' profitability from all the policy changes that are under way and the macros of the technology impacts globally that are cutting into outcomes pretty rapidly."
In its earnings review, Forsyth Barr said in terms of share price reactions, the market appeared to be satisfied with the results season.
Companies that had the most notable positive price reaction included Metro Performance Glass, Mainfreight, Argosy Property and Infratil.
Conversely, the market registered its displeasure with Pacific Edge, Evolve Education, Tower, Sanford and Arvida.
Revenue growth surprised on the positive side but those gains had been given back in higher costs, it said.
"Meanwhile normalised earnings per share growth for the next three years has barely moved the dial," Forsyth Barr said.
In general, the season has concluded on a slight positive with "beats" outweighing "misses" on an earnings per share basis.
Dividend per share growth was in-line with expectations at plus 3.3 per cent.
How they fared
Net profit after tax - March 31 year
Earnings up
• Restaurant Brands - up 36.6 per cent at $35.5m
• Z Energy up - 16 per cent at $205m
• F&P Healthcare - up 12 per cent at $190.2m
• Ryman Health - up 8.8 per cent at $388.2m
• Arvida - up 7 per cent at $58m
• Mainfreight - up 6.3 per cent at $107.9m
Earnings down
• Augusta Capital - down 90 per cent at $1m
• Evolve - down 24.5 per cent at $12m
• Metro Performance Glass - down 15.9 per cent $16.3m
• Goodman Property - down 6 per cent at $207.5m
