Earnings acceleration 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.
We all know that constant earnings growth captivates almost everyone, from top brass to research analysts. This is because earnings are a measure of the money a company is making. Still, earnings acceleration works even better when it comes to lifting the stock price. Studies have shown that most successful stocks had seen an acceleration in earnings before an uptick in the stock price.
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.
An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. 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 previous periods' growth rates. 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 18. Here are the top four stocks:
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 worldwide. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current year is 228.1%. Jack Henry & Associates, Inc. ( JKHY Quick Quote JKHY - Free Report) caters to community banks by offering technology solutions and payment processing services. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 11.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 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. The company’s 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. Its expected earnings growth rate for the current year is 60%.
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