Corporate reporting season is in full swing on both sides of the Atlantic. Traders are eager to benefit from potentially attractive share price moves. Often, however, the share price moves seen around results require some deciphering.

What constitutes “good results” for the share price? Why would a share price react negatively even after positive headlines?

Let’s assume a UK 100 company says it grew revenues by 50% and doubled its profits. You’d expect the shares to rise, but there are a few reasons why they might still fall.

Profits growth is healthy for any company. As a new shareholder, however, you can’t buy into past growth. You can only buy into a company’s future prospects.

Profits growth is an indication of track record, but no guarantee of future returns. As a result, the profits outlook is more important than past performance for the share price. Lesson number 1: it’s all about the future, not the past.

Hence companies typically offer revenue/profits guidance for the current or next reporting year. Markets will pay close attention to whether this suggests optimism about continued growth, or concerns about stagnation, or worse, a slowdown.

One way to keep shareholders happy is to make sure that profits keep growing faster than revenues. At least meeting, if not beating, guidance. Lesson number 2: results only matter in relation to market expectations. Profits +100% is great, but when consensus was looking for 150%, it is still a glaring miss. To make matters worse, less profits means a lower base from which to grow.

Why does consensus matter? Because expectations for revenues, profits and cash flow underpin the perceived valuation of shares. If investors no longer expect a company to make as much profit in the future, why would the shares be worth the same today as they were yesterday based on the updated numbers?

The spin of headlines can be overwhelming. Especially as companies tend to hide disappointing results behind impressive headlines. Hence Accendo Markets cuts through the jargon, so you can make confident trading decisions.

Accendo scours the markets daily for attractive trading opportunities among companies scheduled to report. From UK 100 household brands to up-and-coming AIM growth unicorns, nothing escapes our watchful eye.

Are you prepared for major companies reporting latest results next week? Some of the unmissable big names next week include oil supermajor BP, pharma giant GlaxoSmithKline and British Airways owner IAG.

Take a look at our easily digestable Week in Advance for a full overview of next week’s action. Do you see a potential results play trade there?

Finally, for easy access to Accendo’s daily market research and experienced brokers, click here for our research Gold Pass.

Josh Phipps, Trader, 1 February 2019