Earnings growth enthralls almost everyone, right from the top brass to research analysts. But the question here is why? This is simply 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!

Investors should always look out for stocks that are ready to make a big move. Earnings acceleration, however, works even better when it comes to lifting the stock price. Studies have shown that a majority of successful stocks had seen acceleration in earnings before an uptick in the stock price.

Future Outperformers

Earnings acceleration helps spot stocks that haven’t caught the attention of investors yet, which once secured will invariably lead to a rally in the share price. This is because earnings acceleration considers both direction and magnitude of growth rates. However, if you pick stocks just on the basis of earnings growth then you are paying for something that has already been reflected in the stock price.

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.

Increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period of time. Sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drag prices down. Hence, earnings acceleration should be viewed as a key metric for share price outperformance.

Screening Parameters:

Let’s look for 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 rate is 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:

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 32. Here are the top five stocks:

Lancaster Colony Corporation (LANC Quick QuoteLANC - Free Report) manufactures and markets specialty food products for the retail and foodservice markets in the U.S. The company’s expected earnings growth for the current year is pegged at 7.3%.

Sucampo Pharmaceuticals, Inc. is a biopharmaceutical company that focuses on the research and development of proprietary drugs for the treatment of gastrointestinal, ophthalmic, autoimmune, and oncology-based inflammatory disorders in the U.S., Japan, Switzerland, and internationally. The company’s expected earnings growth for the current year is 23.2%.

Citrix Systems, Inc. develops and sells products and services that enable the delivery of applications and data over public, private, or hybrid clouds or networks to various types of devices. The company’s expected earnings growth for the current year is 16.2%.

VMware, Inc. provides virtualization and cloud infrastructure solutions in the U.S. and internationally. The company’s expected earnings growth for the current year is 16.2%.

Sanchez Energy Corporation (SN Quick QuoteSN - Free Report) is an independent exploration and production company that engages in exploration, acquisition and development of oil and natural gas resources in the onshore U.S. Gulf Coast. The company’s expected earnings growth for the current year is 71.6%.

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 »