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Consider a company’s revenues over a given period of time, subtract the cost of production and you have earnings. In simple terms, it is how much money a company generates. If the company doesn’t make money then it won’t survive over the long haul. This is the reason why securing earnings growth on a year-over-year basis is the highest priority among the top brass of any organization, be it a fledgling company or an established corporation.
This metric is also considered to be the most significant variable in influencing the share price. Better-than-expected earnings performances generally lead to a jump in the share price. In addition to actual earnings, expectations of earnings also play a significant role in influencing the share price.
How does Earnings Estimates Impact Share Prices?
Earnings estimates are a valuable tool for investors while deciding whether or not to buy a stock. This is because a stock price has been seen to decline despite earnings growth or for that matter a stock price has even surged following an earnings decline. This happens because of missing or beating estimates. So, what does earnings estimates embody?
It includes analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins, expenses and cost control. Earnings estimates also help an analyst to use cash flow analysis to determine the fair value of a firm.
As we are in the thick of the earnings season, this is the right time to look at stocks that have historical earnings growth and also whose quarterly and annual earnings estimates are on the rise.
The Winning Strategy
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we added the following parameters:
Zacks Rank less than or equal to 1 (Only Zacks' 'Strong Buys' allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.)
5-Year Historical EPS Growth (%) greater than X-Industry. (Stocks that possess strong EPS growth history.)
% Change EPS F(0)/F(-1) greater than or equal to 5 (Companies that witnessed year-over-year earnings growth rate of 5% or more in the last reported fiscal year.)
% Change Q1 Estimates over the last 4 weeks greater than zero (Stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks.)
% Change F1 Estimates over the last 1 week greater than zero (Stocks that have seen their annual earnings estimates revised higher in the last 1 week.)
% Change F1 Estimates over the last 4 weeks greater than zero (Stocks that have seen their annual earnings estimates revised higher in the last 4 weeks.)
The above criteria narrowed down the universe of around 7,735 stocks to only 7. Here are the top 5 stocks:
Marriott Vacations Worldwide Corp (VAC - Free Report) is a developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. The company has expected earnings growth of 26.2% for the current year.
Mobile Mini Inc is a provider of portable storage solutions in the United States. The company has expected earnings growth of 10.2% for the current year.
Belden Inc. (BDC - Free Report) designs, manufactures and markets signal transmission solutions worldwide. The company has expected earnings growth of 13.1% for the current year.
First Defiance Financial is a unitary thrift holding company that focuses on traditional banking and property and casualty, life and group health insurance products. The company has expected earnings growth of 12.1% for the current year.
First Midwest Bancorp Inc operates as a bank holding company for First Midwest Bank that provides various banking products and services. The company has expected earnings growth of 8.4% for the current year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Strong Buy Stocks with Solid Earnings Growth
Consider a company’s revenues over a given period of time, subtract the cost of production and you have earnings. In simple terms, it is how much money a company generates. If the company doesn’t make money then it won’t survive over the long haul. This is the reason why securing earnings growth on a year-over-year basis is the highest priority among the top brass of any organization, be it a fledgling company or an established corporation.
This metric is also considered to be the most significant variable in influencing the share price. Better-than-expected earnings performances generally lead to a jump in the share price. In addition to actual earnings, expectations of earnings also play a significant role in influencing the share price.
How does Earnings Estimates Impact Share Prices?
Earnings estimates are a valuable tool for investors while deciding whether or not to buy a stock. This is because a stock price has been seen to decline despite earnings growth or for that matter a stock price has even surged following an earnings decline. This happens because of missing or beating estimates. So, what does earnings estimates embody?
It includes analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins, expenses and cost control. Earnings estimates also help an analyst to use cash flow analysis to determine the fair value of a firm.
As we are in the thick of the earnings season, this is the right time to look at stocks that have historical earnings growth and also whose quarterly and annual earnings estimates are on the rise.
The Winning Strategy
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we added the following parameters:
Zacks Rank less than or equal to 1 (Only Zacks' 'Strong Buys' allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.)
5-Year Historical EPS Growth (%) greater than X-Industry. (Stocks that possess strong EPS growth history.)
% Change EPS F(0)/F(-1) greater than or equal to 5 (Companies that witnessed year-over-year earnings growth rate of 5% or more in the last reported fiscal year.)
% Change Q1 Estimates over the last 4 weeks greater than zero (Stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks.)
% Change F1 Estimates over the last 1 week greater than zero (Stocks that have seen their annual earnings estimates revised higher in the last 1 week.)
% Change F1 Estimates over the last 4 weeks greater than zero (Stocks that have seen their annual earnings estimates revised higher in the last 4 weeks.)
The above criteria narrowed down the universe of around 7,735 stocks to only 7. Here are the top 5 stocks:
Marriott Vacations Worldwide Corp (VAC - Free Report) is a developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. The company has expected earnings growth of 26.2% for the current year.
Mobile Mini Inc is a provider of portable storage solutions in the United States. The company has expected earnings growth of 10.2% for the current year.
Belden Inc. (BDC - Free Report) designs, manufactures and markets signal transmission solutions worldwide. The company has expected earnings growth of 13.1% for the current year.
First Defiance Financial is a unitary thrift holding company that focuses on traditional banking and property and casualty, life and group health insurance products. The company has expected earnings growth of 12.1% for the current year.
First Midwest Bancorp Inc operates as a bank holding company for First Midwest Bank that provides various banking products and services. The company has expected earnings growth of 8.4% for the current year.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »