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Right from the top brass to research analysts, earnings growth enthralls almost everyone. This is because earnings are a measure of the money a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!
Upbeat earnings results are more often than not followed by an uptick in the share price. But, earnings acceleration works even better in boosting the stock price.
Future Outperformers
Earnings acceleration helps you select stocks that haven’t caught the attention of investors yet and consequently are on the verge of solid price appreciation. This is because earnings acceleration considers both direction and magnitude of growth rates. However, in case of earnings growth you pay for something that is already reflected in the stock price.
Increase in the percentage of earnings growth convinces us about the fundamental soundness of the company. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to tank.
So, what is earnings acceleration? It is the incremental growth in a company’s earnings per share (EPS). In other words, if the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated frame of time, it can be called earnings acceleration.
This is the reason why earnings acceleration should be viewed as a key metric for share price outperformance.
Screening Parameters:
Let’s pick stocks for which the last two quarter-over-quarter percentage EPS growth rates are more than the growth rates of the previous periods. The projected quarter-over-quarter percentage EPS growth rates are also expected to be higher than the previous periods’ growth rates.
EPS % Projected Growth (Q1)/(Q0) greater than EPS % Growth (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) has to be greater than the growth rate from the completed quarter (Q0) over one quarter ago (Q-1).
EPS % Growth (Q0)/(Q-1) greater than EPS % Growth (Q-1)/(Q-2): The growth rate for the completed quarter (Q0) over one quarter ago (Q-1) has to be greater than the growth rate from one quarter ago (Q-1) over two quarters ago (Q-2).
EPS % Growth (Q-1)/(Q-2) greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) over two quarters ago (Q-2) has to be greater than the growth rate from two quarters ago (Q-2) over three quarters ago (Q-3).
In addition to this, we have added the following parameters:
Current Price greater than or equal to $5: This screens out the low-priced stocks.
Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.
The above criteria narrowed down the universe of around 7,676 stocks to only 24. Here are the top five stocks:
Insulet Corporation (PODD - Free Report) develops, manufactures and sells insulin infusion systems for people with insulin-dependent diabetes in the United States. The company’s expected earnings growth for the current year is 62%.
Cliffs Natural Resources Inc. (CLF - Free Report) is a mining and natural resources company that produces and supplies iron ore. The company’s expected earnings growth for the current year is 231.5%.
NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company worldwide. The company’s expected earnings growth for the current year is 71.5%.
Ultra Petroleum Corp. is an independent oil and gas company, which engages in the acquisition, exploration, development, operation and production of oil and natural gas properties. The company’s expected earnings growth for the current year is 148.4%.
Pan American Silver Corp. (PAAS - Free Report) , together with its subsidiaries, engages in silver mining and related activities. The company’s expected earnings growth for the current year is 185.5%.
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 Top Stocks with Solid Earnings Acceleration
Right from the top brass to research analysts, earnings growth enthralls almost everyone. This is because earnings are a measure of the money a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!
Upbeat earnings results are more often than not followed by an uptick in the share price. But, earnings acceleration works even better in boosting the stock price.
Future Outperformers
Earnings acceleration helps you select stocks that haven’t caught the attention of investors yet and consequently are on the verge of solid price appreciation. This is because earnings acceleration considers both direction and magnitude of growth rates. However, in case of earnings growth you pay for something that is already reflected in the stock price.
Increase in the percentage of earnings growth convinces us about the fundamental soundness of the company. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to tank.
So, what is earnings acceleration? It is the incremental growth in a company’s earnings per share (EPS). In other words, if the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated frame of time, it can be called earnings acceleration.
This is the reason why earnings acceleration should be viewed as a key metric for share price outperformance.
Screening Parameters:
Let’s pick stocks for which the last two quarter-over-quarter percentage EPS growth rates are more than the growth rates of the previous periods. The projected quarter-over-quarter percentage EPS growth rates are also expected to be higher than the previous periods’ growth rates.
EPS % Projected Growth (Q1)/(Q0) greater than EPS % Growth (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) has to be greater than the growth rate from the completed quarter (Q0) over one quarter ago (Q-1).
EPS % Growth (Q0)/(Q-1) greater than EPS % Growth (Q-1)/(Q-2): The growth rate for the completed quarter (Q0) over one quarter ago (Q-1) has to be greater than the growth rate from one quarter ago (Q-1) over two quarters ago (Q-2).
EPS % Growth (Q-1)/(Q-2) greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) over two quarters ago (Q-2) has to be greater than the growth rate from two quarters ago (Q-2) over three quarters ago (Q-3).
In addition to this, we have added the following parameters:
Current Price greater than or equal to $5: This screens out the low-priced stocks.
Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.
The above criteria narrowed down the universe of around 7,676 stocks to only 24. Here are the top five stocks:
Insulet Corporation (PODD - Free Report) develops, manufactures and sells insulin infusion systems for people with insulin-dependent diabetes in the United States. The company’s expected earnings growth for the current year is 62%.
Cliffs Natural Resources Inc. (CLF - Free Report) is a mining and natural resources company that produces and supplies iron ore. The company’s expected earnings growth for the current year is 231.5%.
NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company worldwide. The company’s expected earnings growth for the current year is 71.5%.
Ultra Petroleum Corp. is an independent oil and gas company, which engages in the acquisition, exploration, development, operation and production of oil and natural gas properties. The company’s expected earnings growth for the current year is 148.4%.
Pan American Silver Corp. (PAAS - Free Report) , together with its subsidiaries, engages in silver mining and related activities. The company’s expected earnings growth for the current year is 185.5%.
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 »