Earnings growth is one of the most important variables in influencing share prices. After all, if the company doesn’t make money, it won’t last over the long haul. Consider a company’s revenues over a given period of time, subtract the cost of production, and you have earnings. But it’s also true that expectations of earnings play a significant role in impacting share prices.
Often, we have 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 only 31. Here are the top four stocks:
NIKE, Inc. ( NKE Quick Quote NKE - Free Report) is engaged in the business of designing, developing and marketing of athletic footwear, apparel, equipment and accessories. The company has a Zacks Rank #1 (Strong Buy). The company’s expected earnings growth rate for the current year is 20.2%. You can see the complete list of today’s Zacks #1 Rank stocks here. KB Home ( KBH Quick Quote KBH - Free Report) is a well-known homebuilder in the United States and one of the largest in the state. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current year is 99.4%. Clearfield, Inc. ( CLFD Quick Quote CLFD - Free Report) designs and manufactures the FieldSmart fiber management platform. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 135.9%. Mercantile Bank Corporation ( MBWM Quick Quote MBWM - Free Report) serves businesses and consumers across Grand Rapids and Kent County with a full range of mortgage, lending, deposit and checking products and services in a friendly, hometown banking environment. The company has a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 34.2%.
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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