Persistent earnings growth captivates almost everyone, right from the top brass to research analysts. This is because earnings are a measure of the money a company is making. Still, earnings acceleration works better when it comes to lifting the stock price. Studies have shown that most successful stocks have seen an acceleration in earnings before an uptick in the stock price.
Earnings acceleration, in fact, 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.
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 yet caught the attention of investors. Once secured, it will invariably lead to a rally in the share price. This is because earnings acceleration considers both the 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 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. Here are the stocks:
PDF Solutions ( PDFS Quick Quote PDFS - Free Report) provides technologies and services to enable semiconductor companies to improve the yield and performance of manufactured integrated circuits by providing infrastructure to integrate the design and manufacturing processes. PDFS currently has a Zacks Rank #2 (Buy). PDFS’ expected earnings growth rate for the current year is 425%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. Infineon Technologies ( IFNNY Quick Quote IFNNY - Free Report) produces and sells semiconductors — microchips that have enabled the information age and led to a vast increase in the speed, portability and capabilities of computers and a myriad of other electronic devices. IFNNY currently has a Zacks Rank #2. IFNNY’s expected earnings growth rate for the current year is 37.5%. PattersonUTI Energy ( PTEN Quick Quote PTEN - Free Report) is an oilfield services company. PTEN currently has a Zacks Rank #2. For the current year, PTEN’s expected earnings growth rate is 118.7%.
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