Why is reporting season important?

Reporting season is important because it can highlight continuing positive and negative trends. Outperformers tend to continue to outperform and underperformers continue to underperform. Take the 3 best and worst performers in August 2018 in the ASX 200.

Top in August 2018: Appen (APX) up 41%, Altium (ALU) up 37%, Bravura Solutions (BVS) up 31%

Bottom in August 2018: Speedcast International (SDA) down 32%, Sims Metal Management (SGM) down 27%, Pact Group Holdings (PGH) down 24%

The top 3 performers have managed to gain another 8% on average since the end of August, whereas the bottom performers have lost another 16% in that timeframe.

Most things in life are cyclical and when it comes to stocks, the same usually applies. Cycles makepredicting the growth or contraction cycles of companies easier to forecast. This means that companies that are accelerating earnings growth are likely to continue to grow. Conversely, companies stuck in a downgrade cycle are also likely to continue to see decelerating earnings growth.

Click here to take a free 21-day trial to the Switzer Report and find out which stocks have impressed so far, as well as Julia's favourite.