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Reporting season is tough for shares with big expectations

We are now in the middle of reporting season with reports coming thick and fast. So far there have been some hits as well as misses.

Today has shown what can happen when shares don’t meet the expectations that are set.

The Domino’s Pizza Enterprises Ltd. (ASX: DMP) share price is down by almost 3%, having been down much further in the morning.

The Challenger Ltd (ASX: CGF) share price is down 3.5%, it has also recovered somewhat from this morning.

The Cochlear Limited (ASX: COH) share price is down nearly 4%. It too has recovered during the day but it’s still down.

Admittedly, Domino’s didn’t meet its own guidance and Challenger came in at the bottom of its own guidance. But it shows that share prices will be punished if businesses don’t reach expectations.

Some other businesses like Altium Limited (ASX: ALU), a2 Milk Company Ltd (ASX: A2M), WiseTech Global Ltd (ASX: WTC) among others are priced highly. Could they be on course for a fall when they report? Maybe. I wouldn’t want to buy any shares until after they have reported.

It can be a dangerous game trying to guess if share prices will go up or down on the report. If you invested in Challenger or Altium with where the businesses will be in FY25 in mind then does it really matter what happens in FY18 or FY19? Arguably it doesn’t matter in the long-term.

Foolish takeaway

Remember that investing is a marathon not a sprint. One report hopefully doesn’t change your investment thesis. The market doesn’t care if you own a particular share or not. The only thing you can control is the price you buy at and sell at.

One share that could get a big positive re-rating when it reports is this top share which has predicted it will reveal profit growth of at least 30%.

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Motley Fool contributor Tristan Harrison owns shares of Altium and Challenger Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of A2 Milk, Altium, and WiseTech Global. 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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