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Investors are always on the lookout for stocks that are ready to make a significant jump. For that to happen, finding out stocks with consistent earnings growth is imperative. This is because earnings not only serve as the indicator of a company’s profitability but also influence the share price. Generally, better-than-expected earnings growth leads to an upsurge in the share price.
But, there is another metric called earnings acceleration, which works even better in boosting the share price. Studies have shown that the majority of successful stocks had seen acceleration in earnings before their positive price moves. So, what exactly is earnings acceleration?
Earnings Acceleration for Future Outperformers
Basically, earnings acceleration is the incrementally growing earnings per share (EPS) of a company. Or, in other words, it is the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time.
But, why is it better than earnings growth? This is simply because in case of earnings you pay for something that has already been reflected in the stock price. However, in case of earnings acceleration you select stocks that haven’t caught the attention of the investors yet, which once secured will invariably lead to an uptick in the share price.
Increase in the percentage of earnings growth makes us believe that the company is in sound shape and has been on the right track for a consistent period of time. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to tank.
Hence, investment in stocks having solid earnings acceleration is a profitable strategy as it considers both the direction and magnitude of growth rates.
The Winning Strategy
Let’s look for stocks for which the last two quarter-over-quarter percentage EPS growth rates are more than 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 the 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 over 7,747 stocks to only 9. Here are the top 5 stocks:
ArcelorMittal (MT - Free Report) operates as an integrated steel and mining company across the world. MT’s products include slabs, plates, electro-galvanized coils and sheets, tinplate and color coated coils and sheets, and welded pipes and tubes. The company’s estimated earnings growth rate for this year is more than 100%.
Dynamic Materials Corp. (BOOM - Free Report) operates in the energy, industrial and infrastructure markets throughout the world. BOOM operates in two segments, NobelClad and DynaEnergetics. The company’s estimated earnings growth rate for this year is above 100%.
Randgold Resources Limited (GOLD - Free Report) explores and develops gold deposits in Sub-Saharan Africa. GOLD holds interests in the Morila gold mine, the Loulo gold mine and the Gounkoto gold mine that are located in Mali, West Africa. The company’s estimated earnings growth rate for this year is 46.4%.
Broadridge Financial Solutions, Inc. (BR - Free Report) provides investor communications and technology-driven solutions for the financial services industry worldwide including the U.S. The company’s estimated earnings growth rate for this year is 10.5%.
Hexcel Corp. (HXL - Free Report) manufactures and sells structural materials for use in commercial aerospace, space and defense, and industrial markets. The company’s estimated earnings growth rate for this year is 7.7%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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Buy 5 Best Stocks with Accelerating Earnings
Investors are always on the lookout for stocks that are ready to make a significant jump. For that to happen, finding out stocks with consistent earnings growth is imperative. This is because earnings not only serve as the indicator of a company’s profitability but also influence the share price. Generally, better-than-expected earnings growth leads to an upsurge in the share price.
But, there is another metric called earnings acceleration, which works even better in boosting the share price. Studies have shown that the majority of successful stocks had seen acceleration in earnings before their positive price moves. So, what exactly is earnings acceleration?
Earnings Acceleration for Future Outperformers
Basically, earnings acceleration is the incrementally growing earnings per share (EPS) of a company. Or, in other words, it is the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time.
But, why is it better than earnings growth? This is simply because in case of earnings you pay for something that has already been reflected in the stock price. However, in case of earnings acceleration you select stocks that haven’t caught the attention of the investors yet, which once secured will invariably lead to an uptick in the share price.
Increase in the percentage of earnings growth makes us believe that the company is in sound shape and has been on the right track for a consistent period of time. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to tank.
Hence, investment in stocks having solid earnings acceleration is a profitable strategy as it considers both the direction and magnitude of growth rates.
The Winning Strategy
Let’s look for stocks for which the last two quarter-over-quarter percentage EPS growth rates are more than 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 the 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 over 7,747 stocks to only 9. Here are the top 5 stocks:
ArcelorMittal (MT - Free Report) operates as an integrated steel and mining company across the world. MT’s products include slabs, plates, electro-galvanized coils and sheets, tinplate and color coated coils and sheets, and welded pipes and tubes. The company’s estimated earnings growth rate for this year is more than 100%.
Dynamic Materials Corp. (BOOM - Free Report) operates in the energy, industrial and infrastructure markets throughout the world. BOOM operates in two segments, NobelClad and DynaEnergetics. The company’s estimated earnings growth rate for this year is above 100%.
Randgold Resources Limited (GOLD - Free Report) explores and develops gold deposits in Sub-Saharan Africa. GOLD holds interests in the Morila gold mine, the Loulo gold mine and the Gounkoto gold mine that are located in Mali, West Africa. The company’s estimated earnings growth rate for this year is 46.4%.
Broadridge Financial Solutions, Inc. (BR - Free Report) provides investor communications and technology-driven solutions for the financial services industry worldwide including the U.S. The company’s estimated earnings growth rate for this year is 10.5%.
Hexcel Corp. (HXL - Free Report) manufactures and sells structural materials for use in commercial aerospace, space and defense, and industrial markets. The company’s estimated earnings growth rate for this year is 7.7%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »