Earnings acceleration is the incremental growth in a company’s earnings per share. 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.
Notably, 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.
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 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 three stocks that stand out:
Steven Madden, Ltd. ( SHOO Quick Quote SHOO - Free Report) designs, sources, markets and sells fashion-forward name brand and private label footwear for women, men, and children and private label fashion handbags and accessories across the world. The company has a Zacks Rank #2 (Buy). Its expected earnings growth rate for the current year is 225%. Camden Property Trust ( CPT Quick Quote CPT - Free Report) is one of the largest publicly traded multifamily companies in the United States. The company has a Zacks Rank #2. Its expected earnings growth rate for the current year is 7.6%. Sociedad Quimica y Minera S.A. ( SQM Quick Quote SQM - Free Report) produces fertilizer and iodine and manufactures industrial chemicals and iodine derivative products. The company has a Zacks Rank #1 (Strong Buy). Its expected earnings growth rate for the current year is 60%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
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