The Zacks Rank stock-picking system is a proven method for both beginning and experienced investors to identify the strongest stocks to buy. The model, which recognizes the importance of earnings estimates and estimate revisions, highlights stocks of all shapes and size that are poised to outperform the market.
When a company earns the coveted Zacks Rank #1 (Strong Buy), it is displaying the right characteristics to beat the market over the next one to three months. But of course, reaching this ideal rank is not an easy feat. Of the thousands of companies tracked by Zacks, only about 5% earn this designation.
Below, you will read about one specific company that helped prove the strength of the Zacks Rank. If investors had followed our model when it identified this popular fintech growth stock, they would have achieved massive profits.
Square Inc. (SQ - Free Report)
Square is a financial services company that provides payments and point-of-sale solutions. The red-hot company builds hardware and software products that help merchants accept payments, streamline operations, and analyze business information. Square also offers lending services via Square Capital and HR services through Square Payroll.
Wall Street has fallen in love with Square over the past year or so, and the stock has also been flagged by the Zacks Rank system several times in that time. In fact, on Feb. 24, 2017, Square was added to the Zacks Rank #1 (Strong Buy) list, and it would stay there for nine consecutive weeks.
Square earned this designation after analysts improved their outlook on the company following its incredible earnings announcement just a few days earlier. In the relevant period, Square reported an adjusted loss of four cents per share, outpacing the Zacks Consensus Estimate by five cents and improving about 88% year over year.
The company would ride the wave of that report for some time, never dipping below a Zacks Rank #3 (Hold) before eventually earnings a #2 (Buy) on June 9. Square would hold that ranking for six weeks. The stock would later earn #2 (Buy) designations again on Sep. 22 and Oct. 13.
All of this bullishness paid off with another impressive earnings report in early November. The company surged into profitability, posting adjusted earnings of seven cents per share, which beat the Zacks Consensus Estimate of five cents and marked year-over-year growth of 178%. Square also reported revenues that beat the consensus estimate and improved 33% from the prior-year period.
Since then, Square has never dropped below a #3 (Hold), and investors are looking forward to another remarkable quarterly report soon, with current estimates calling for EPS growth of 20% and net sales growth of 35%.
The below chart demonstrates the price performance for SQ and 12-month forward looking EPS estimate (in red), starting from the time the stock first earned a Zacks Rank #1 (Strong Buy).
As we can see, SQ was a huge winner for those that followed the Zacks Rank. The stock is currently up more than 156% since earning a Zacks Rank #1 (Strong Buy) last year. Investors should know that our model is the simplest way to identify elite stocks poised to beat the market on a consistent basis.
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