Earnings growth is considered the most important variable influencing share price. This is because if the company doesn’t make money, it won’t last over the long haul. By the way, if you study a company’s revenues over a given period and subtract the cost of production, you will have earnings. But, expectations of earnings also play a significant role.
Earnings Estimates & Share Price Movements
Often, we have seen a decline in the stock price despite earnings growth and a rally in price following an earnings decline. This is largely the 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, investors need to buy stocks that have historical earnings growth and are 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 7,840 stocks to only 15. Here are the top three stocks that stand out:
Tronox ( TROX Quick Quote TROX - Free Report) is a vertically integrated mining and inorganic chemical business. Tronox mines and processes titanium ore, zircon and other minerals and manufactures titanium dioxide pigments to paints, plastics, paper and other everyday products. The company has a Zacks Rank #2 (Buy). TROX’s expected earnings growth rate for the next year is 17.2%. You can see the complete list of today’s Zacks #1 Rank stocks here. Veritiv ( VRTV Quick Quote VRTV - Free Report) engages in offering North American business-to-business distribution solutions. Veritiv provides packaging, print and print management, publishing, supply chain, facility and logistics solutions that span the entire lifecycle of core business operations. The company has a Zacks Rank #1 (Strong Buy). VRTV’s expected earnings growth rate for the next year is 21.1%. Jabil ( JBL Quick Quote JBL - Free Report) is one of the largest global suppliers of electronic manufacturing services (EMS). Jabil offers electronics design, production, product management and after-market services to customers catering to aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries. The company has a Zacks Rank #2. JBL’s expected earnings growth rate for the next year is 8.4%.
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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