Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings! Right from the top brass to research analysts, earnings growth interests all. This is because upbeat earnings serve as an indicator of a company’s profitability. It also more often than not leads to an uptick in the share price.

 

Studies, however, have shown that a majority of successful stocks have seen acceleration in earnings before a positive stock price movement.

 

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.

 

In case of earnings growth, you pay for something that is already reflected in the stock price. But 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.

 

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. Meanwhile, a 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.

Let’s look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed 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 7,735 stocks to only nine. Here are the top four stocks:

 

The Wendys Company (WEN Quick QuoteWEN - Free Report) is the world’s third-largest quick-service restaurant company. The company has a Zacks Rank #3 (Hold). The company’s expected earnings growth rate for the next five-year period is 8.9%.

 

WAVE Life Sciences Ltd. (WVE Quick QuoteWVE - Free Report) is a preclinical biopharmaceutical company. The company has a Zacks Rank #3. The company’s expected earnings growth rate for the current and next year is 31.5% and 56.1%, respectively.

 

ADTRAN, Inc. (ADTN Quick QuoteADTN - Free Report) designs, manufactures, markets and services network access solutions for communication networks. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the next quarter is 100%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

USA Truck, Inc. is engaged in the transportation of general commodity freight in interstate and foreign commerce. The company has a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 84.6%.

 

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.

 

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Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance