High quality Australian businesses have recently been slogged amid profit downgrades. Companies which have flagged downgrades include Seek (ASX: SEK), Flight Centre (ASX: FLT) and others such as Nine Entertainment (ASX: NEC) and Qube Holdings (ASX: QUB).
A recurring theme is that revenue growth has been an issue. They have been expanding bottom lines via cost cutting but this will only go so far. It is worrying to see companies which are not only deeply intertwined with the economy, but also, are of high quality see problems at the top line. Other companies such as IOOF have been dumped by the market amid "rumours" of a whilseblower who told Fairfax Media that IOOF have engaged in activities such as insider trading and front-running.
While some may argue the market has overreacted, it pays to think independently. When companies such as Seek and FLT come out with profit downgrades, this doesn't paint a bright picture for me going into reporting season. I believe more downgrades are imminent given the not before seen shift in the global economy and the repercussions we are seeing.
Companies which can display growth in earnings irrespective of where we are in the economic cycle are ones which should be constantly on the radar. Something that i do to check this at times, is to see how the particular company went during the GFC and compare their performance among peers. This won't work for every company and is much better suited for countries other than Australia (as the GFC had little relative impact on our domestic economy).
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