There are worries that the upcoming reporting season could serve a sobering reality check for over-enthusiastic investors who have pushed up the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index up 18% since the start of the calendar year.
This means investors could be in for a bumpy ride although it’s those who are more exposed to shares on the S&P/ASX SMALL ORDINARIES (Index:^AXSO) (ASX:XSO) index that could be more susceptible to vertigo.
Stocks at the smaller end of the market are by their very nature far more volatile than large cap stocks and the August reporting season is where you will probably see this on full display.
Morgan Stanley is warning small cap investors to expect significant volatility around the profit results with moves of more than 10% likely to be commonplace.
If you are wondering which emerging stocks could find themselves on the right side of earnings expectations, the broker has compiled a list of potential reporting season stars.
In its eyes, the five small caps that are likely to outperform next month include:
Nearmap Ltd (ASX: NEA): Investors can expect the aerial mapping tech company to post strong annualised contract value (ACV) in the fourth quarter and the broker believes the up-sell of 3D and AI products could provide upside going forward.
Jumbo Interactive Ltd (ASX: JIN): The broker expects the second-half jackpots to deliver strong sales for the online lottery company. More importantly, Jumbo is also likely to announce an increase in new customer using its services.
Idp Education Ltd (ASX: IEL): The educational services provider could post a better than expected result on placement volumes, IELTS share gains and marketing initiatives. What’s more, there’s low expectations as consensus is forecasting a slowdown.
Audinate Group Ltd (ASX: AD8): The audio tech company is likely to show growing industry adoption of its technology and higher software sales. Investors can also look forward to first revenues from the video segment in FY20 or FY21.
Baby Bunting Group Ltd (ASX: BBN): The baby products retailer is expected to post ongoing same-store sales momentum and improving leverage given the soft gross margins in the previous period as cost inflation eases. Baby Bunting has also improved its competitive position, according to the broker.
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Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO and Nearmap Ltd. The Motley Fool Australia has recommended Jumbo Interactive 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.