Arguably, there is nothing that is more important than earnings for stock prices. These quarterly reports help investors to get a better grip on how a company has been doing, and its near term outlook as well.
However, many times an earnings report will contain a surprise that can truly move a stock. These earnings surprises can either lead to huge gains or can bring big losses to a portfolio, so it is very important to try to find these surprises ahead of time.
While there are a number of ways to find earnings surprises before it is too late, one new technique that may offer superior performance is using the Zacks Earnings ESP metric.
ESP in Focus
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst revisions. This is done because, generally speaking, if an analyst reevaluates their earnings estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
The crux of this approach is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, although the Zacks Rank is also an important feature of the ESP metric. Combining these two can help investors find stocks that are ready to beat the consensus at their next report, and hopefully surge higher in price too.
In fact, when combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. And best of all, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.
Learn More About Zacks Earnings ESP
This isn’t all that investors should know about Zacks Earnings ESP though, as there are plenty of other factors to consider and keep in mind for this new metric. To see the full report on this topic and how you can use it in your investing strategies, read our Guide to Zacks Earnings ESP.
Also make sure to check out some of new Earnings ESP features, available now on the Earnings ESP Home Page: