From top brass to research analysts, almost everyone in the investment world is captivated by earnings growth. 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. Some of the notable companies to have witnessed solid earnings acceleration as of now are
nCino ( NCNO Quick Quote NCNO - Free Report) , Constellation Energy Corporation ( CEG Quick Quote CEG - Free Report) , Brookfield Renewable Partners ( BEP Quick Quote BEP - Free Report) and Marathon Digital ( MARA Quick Quote MARA - Free Report) .
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. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may sometimes drag prices down.
Let us 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 eight. Here are the four stocks to keep an eye on:
nCino is a provider of cloud-based software for financial institutions. NCNO’s expected earnings growth rate for the current year is 628.6%. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. Constellation Energy generates and sells electricity in the United States. The company currently has a Zacks Rank #3 (Hold). CEG’s expected earnings growth rate for the current year is 918.4%. Brookfield Renewable Partners owns and operates a renewable power platform. The company currently has a Zacks Rank #3. BEP’s expected earnings growth rate for the current year is 80%. Marathon Digital is a digital asset technology company that mines cryptocurrencies, focusing on the blockchain ecosystem and the generation of digital assets. The company presently carries a Zacks Rank #3. MARA’s expected earnings growth rate for the current year is 112.6%.
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