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3 stocks that could fly this earnings season and 3 that could flop

Share market commentators and self-styled experts everywhere are offering their views as to what to expect this profit reporting season. So I thought it worth taking a look at a few companies that could surprise to the upside or downside.

Share price reactions on the day a company reports its results are generally determined by how the company reported versus analysts’ expectations, alongside what the company is forecasting for the six months or so ahead.

Clearly trying to predict short-term share price movements is a bit of a dummy’s game, but for what it’s worth here are three companies with room to move higher on the day they report and three with room to move lower.

3 shares that could soar

CSL Limited (ASX: CSL) has already provided a forecast for FY 2018’s profit to come in between US$1,680 – US$1,710 million, with analysts’ pencilling in earnings growth of around 14% in FY 2019. Given the strong profit growth momentum behind this business I expect it may surprise to the upside even though it has flagged more investment in research in FY 2019.

Bapcor Ltd (ASX: BAP) was reportedly named by Macquarie’s analysts recently as a potential candidate for an upside earnings surprise and the automotive parts supplier is already forecasting FY 2018 profit growth of more than 30%. It has a strong track record as a listed business and the valuation is not excessive given the bumper growth rates. Another strong result in August and investors could re-rate the stock higher.

Altium Limited (ASX: ALU) would be on many people’s lists as a potential floozy when it reports given the hot share price run and whopping valuation. However, this business looks to have momentum on its side after handing in a stunning interim result, with the six months to June 2018 likely to also prove strong. The stock sells for just over $20 today and could be volatile when it reports later this month.

3 shares that could tumble

QBE Insurance Group Ltd (ASX: QBE) is a seasoned underperformed and given its complex business model that involves multiple overseas operations it wouldn’t be a surprise if it fails to deliver again. The general insurance sector also remains competitive and investors are not likely to generate much in the way of sustainable returns from QBE.

Domino’s Pizza Enterprises Ltd. (ASX: DMP) has guided for 20% profit growth over FY 2018 based on a stronger second half to the year. However, the CEO has been selling shares and the best growth days for this business may be behind it. Its share price direction is also likely to depend on what guidance management gives for FY 2019. Domino’s is on quite a rich valuation and has more than 15% of its outstanding stock shorted.

BWX Ltd (ASX: BWX) is a business I am kicking myself for not selling my entire holding in on news of a recent “takeover offer” backed by private equity alongside its CEO and CFO.

The business behind the Sukin skincare brand is also being sued in the U.S. over a string of allegedly embarrassing management misdemeanours and I expect it will hand in disappointing results even on top of today’s downgrade. The stock looks a sell in my opinion, with the only argument against holding on being the potential $6.60 takeover offer that is “under consideration” by a board moving at a glacial speed.

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Motley Fool contributor Tom Richardson owns shares of Altium, Bapcor, BWX Limited, Cochlear Ltd., and CSL Ltd.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Bapcor and BWX Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Cochlear Ltd. and Domino's Pizza Enterprises Limited. 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 Scott Phillips.

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