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6 ASX stocks to avoid this earnings season

While most of the market’s focus is on the drama unfolding in Greece and Europe, investors can’t lose sight of what’s going on in our local Australian market. An interesting observation, that a few commentators are picking up on, is that we’re seeing a number of high-profile companies either outright downgrade earnings or provide negative commentary about the second half of the financial year.

Confession Season

This time of the year, typically through June and July, is what’s known as ‘confession season’, which comes shortly before earnings season in August. The reason why we’re seeing a rash of downgrades is that companies are starting to pull together their financial results for the half or full-year and are realising that the numbers aren’t looking as good as they were hoping.

Here are six companies that have announced confessions and should be avoided for now:

Azure Healthcare Ltd (ASX: AZV) shares were smashed over 40% in two days following an earnings update to the market in which it announced a 12% increase in revenues to $35 million but a massive increase in investment to $4.7 million during the period, compared to just $2.6 million for the previous corresponding period.

SEEK Limited (ASX: SEK) shares were sold down 14% on one day when it announced one-off issues with its SEEK Learning division due to an IT systems upgrade undertaken by TAFE NSW.

Flight Centre Travel Group Ltd (ASX: FLT) shareholders suffered a 23% loss of capital in just one day in June when Flight Centre announced that it expected full-year underlying profit before tax (PBT) to be between $355 million and $365 million, the mid-point of which is at the bottom of the company’s previously targeted range of $360 million to $390 million.

Woolworths Limited (ASX: WOW) shares are sitting around its 52-week low following a disastrous month where the CEO departed and the company downgraded earnings for the second time in just four months!

Nine Entertainment Co Holdings Ltd (ASX: NEC) downgraded Group EBITDA (before Specific Items, and inclusive of Nine Live) for the year ended 30 June 2015 to the range of $285m to $290m from $311m expected previously. The shares have headed downwards since and could go much lower.

Slater & Gordon Limited (ASX: SGH) didn’t really downgrade guidance but has been downgraded by analysts following the unearthing of questionable accounting practices. I’d be wary investing in the company until more is known of the impact going forward.

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Motley Fool contributor Andrew Mudie owns shares of Azure Healthcare Limited. You can find Andrew on Twitter @andrewmudie

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.