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The 3 biggest disappointments during earnings season

Yesterday I looked at three key highlights during earnings season. These included bumper profit growth from tech star Altium Limited (ASX: ALU) and an impressive turnaround by retail conglomerate Super Retail Group Ltd (ASX: SUL).

Unfortunately, not all companies had a successful earnings season. Three of the biggest disappointments during the month in my opinion are summarised below:

G8 Education Ltd (ASX: GEM)

Last month G8 Education released its half year results and revealed a 7.6% increase in revenue, but a 21% decline in underlying earnings before interest and tax on the prior corresponding period. The poor result was driven by another drop in the childcare operator’s occupancy levels and higher staff costs. G8 Education finished the period with an occupancy level of just 70.1% due to the impact of an oversupply of childcare centres. Unfortunately, I don’t see this issue going away any time soon, making G8 Education one to avoid.

Greencross Limited (ASX: GXL)

In FY 2018 this integrated pet care company posted statutory net profit after tax of $20.7 million, down 51% on the prior year. This led to the Greencross board reducing its FY 2018 dividend by 18% to 15.5 cents per share. While it has reported a reasonably solid start to FY 2019, I feel it is still a little soon to invest and expect another underwhelming year from the company. This was recently echoed by Deutsche Bank when it slapped a sell rating and $3.70 price target on the company’s shares.

Ramsay Health Care Limited (ASX: RHC)

While I was expecting this private hospital operator to deliver a weak full year result in FY 2018, I was still taken by surprise by how weak it was and how soft its guidance for the year ahead was. Due to tough trading conditions across its whole business, management expects Ramsay to grow core EPS by up to 2% in FY 2019. Although it is a high quality company, I think its shares are overvalued given its current growth profile.

Instead of Ramsay, I would be buying one of these top blue chip shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Greencross Limited. The Motley Fool Australia owns shares of Altium and Super Retail Group Limited. The Motley Fool Australia has recommended Ramsay Health Care 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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