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 other words, it is the incremental growth in a company’s earnings per share (EPS).
Studies have shown that a majority of successful stocks had seen 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.
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 seven. Here are the three stocks that stand out:
Laureate Education, Inc. ( LAUR Quick Quote LAUR - Free Report) is a degree-granting higher education institution. The company has a Zacks Rank #2 (Buy). Its expected earnings growth rate for the current year is 45.7%. Dave & Buster's Entertainment ( PLAY Quick Quote PLAY - Free Report) is a leading owner and operator of high-volume venues in North America that combine dining and entertainment for both adults and families. The company has a Zacks Rank #2. Its expected earnings growth rate for the current year is 147.7%. Sociedad Quimica y Minera ( 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 88.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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