- Profit forecast upgrades are positive, but not necessarily a sign of good long-term prospects.
- Cyclical and structural risks faced by companies must be considered.
Miner BHP Group (BHP) is the largest high-ranking company on our FTSE All Share momentum screen. The only test it comes up short against is the requirement to have had a 10 per cent earnings upgrade for the next financial year in the last 12 months. Given the innate cyclicality of mining, and the markets for several minerals the company is exposed to, this is perhaps unsurprising.
Joint top of the rankings is gambling and entertainments business 888 Holdings (888) and Royal Mail (RMG). In the case of 888, the only test failed is the upgrade momentum test for the next financial year, possibly because it already surprised to the upside with its lockdown trading figures and the return of sports betting will be priced in already.
Royal Mail is an interesting business and investors should ask plenty of questions given its structural challenges. In the past share price momentum has been partially attributable to short sellers abandoning positions and, while analysts may amend profit forecasts to the upside from time to time, calling Royal Mail’s long-term prospects is very tough.
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