Irrespective of whether it is a start-up or a reputable company, earnings growth is the main priority for the top brass of any organization. This is because if the company doesn’t make money, it won’t last over the long haul.
So, what’s earnings growth? Consider a company’s revenues over a given period of time, subtract the cost of production, and you have earnings. This metric is also considered the most vital variable in manipulating the share price. But, expectations of earnings also play an important role.
Earnings Estimates Determine Share Prices
We have often seen a decline in the stock price despite earnings growth and a rally in the price following an earnings decline. This is largely a result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinion on factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to buy stocks that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have added the following parameters:
Zacks Rank less than or equal to 2 (Only Zacks' 'Buys' and 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.) 5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history). % Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth of 5% or more in the last reported fiscal). % Change Q1 Estimates over the last 4 weeks greater than zero (stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks). % Change F1 Estimates over the last 1 week greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 1 week). % Change F1 Estimates over the last 4 weeks greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 4 weeks).
The above criteria narrowed down the universe of around 7,839 stocks to 42. Here are the top five stocks:
Herbalife LTD. ( HLF Quick Quote HLF - Free Report) is a global network marketing company offering a range of science-based weight management products. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current year is 21.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. DaVita Inc. ( DVA Quick Quote DVA - Free Report) is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 22.6%. Apple Inc. ( AAPL Quick Quote AAPL - Free Report) designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 55.5%. Century Communities, Inc. ( CCS Quick Quote CCS - Free Report) is a home building and construction company. The company has a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 88.6%. Repligen Corporation ( RGEN Quick Quote RGEN - Free Report) is a leading provider of advanced bioprocessing technologies and solutions used by large biopharmaceutical companies and contract manufacturing organizations for manufacturing biologic drugs, such as monoclonal antibodies (mAbs) and gene therapies. The company has a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 15.8%.
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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