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Take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings! In short, earnings serve as a major indicator of a company’s profitability and thus securing earnings growth on a year-over-year basis is the highest priority among the top brass of any organization, be it a fledgling company or an established corporation.
This metric is also considered to be the most significant variable in influencing the share price. Also, earnings expectations play a crucial role in share price movements.
How Do Earnings Estimates Determine Share Prices?
On numerous occasions, companies have seen their share prices decline even after reporting earnings growth or for that matter a stock price surging following an earnings decline. This follows the missing or beating of estimates.
But what exactly do earnings estimates represent? These are analysts’ expectations of a company’s quarterly or annual earnings, which represent their opinion on factors such as sales growth, product demand, competitive industry environment, profit margins, expenses and cost control. Thus, earnings estimates are a valuable tool for making investment choices.
Thus, it is imperative for an investor to zero down to stocks with solid earnings growth and escalating earnings estimates. Moreover, earnings estimates help analysts to use cash flow analysis to determine the fair value of a firm.
We have picked stocks that have displayed historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
The Winning Strategy
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we 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 that possess strong EPS growth history.)
% Change EPS F(0)/F(-1) greater than or equal to 5 (Companies that witnessed year-over-year earnings growth rate 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 7,720 stocks to only 11. Here are the top 5 stocks:
ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) operates as a specialty retailer in the United States. Its stores provide cosmetics, fragrance, haircare, skincare, bath and body products, and salon styling tools. The company’s estimated earnings growth rate for this year is 23.5%.
Urban Outfitters Inc. (URBN - Free Report) is a lifestyle specialty retail company that engages in the retail and wholesale of general consumer products. The company’s estimated earnings growth rate for this year stands at 16.1%.
SkyWest Inc. (SKYW - Free Report) , through its subsidiaries, operates a regional airline in the United States. The company’s estimated earnings growth rate for this year is pegged at 33.8%.
NetEase, Inc. (NTES - Free Report) operates an interactive online community in the Peoples Republic of China. The company has Online Game Services; Advertising Services; and E-mail, E-commerce and Others segments. NetEase’s estimated earnings growth rate for this year is 45.6%.
Dycom Industries Inc. (DY - Free Report) provides specialty contracting services in the United States and Canada. The company’s estimated earnings growth rate for this year stands at 17.4%.
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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Top 5 Stocks with Stellar Earnings Growth
Take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings! In short, earnings serve as a major indicator of a company’s profitability and thus securing earnings growth on a year-over-year basis is the highest priority among the top brass of any organization, be it a fledgling company or an established corporation.
This metric is also considered to be the most significant variable in influencing the share price. Also, earnings expectations play a crucial role in share price movements.
How Do Earnings Estimates Determine Share Prices?
On numerous occasions, companies have seen their share prices decline even after reporting earnings growth or for that matter a stock price surging following an earnings decline. This follows the missing or beating of estimates.
But what exactly do earnings estimates represent? These are analysts’ expectations of a company’s quarterly or annual earnings, which represent their opinion on factors such as sales growth, product demand, competitive industry environment, profit margins, expenses and cost control. Thus, earnings estimates are a valuable tool for making investment choices.
Thus, it is imperative for an investor to zero down to stocks with solid earnings growth and escalating earnings estimates. Moreover, earnings estimates help analysts to use cash flow analysis to determine the fair value of a firm.
We have picked stocks that have displayed historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
The Winning Strategy
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we 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 that possess strong EPS growth history.)
% Change EPS F(0)/F(-1) greater than or equal to 5 (Companies that witnessed year-over-year earnings growth rate 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 7,720 stocks to only 11. Here are the top 5 stocks:
ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) operates as a specialty retailer in the United States. Its stores provide cosmetics, fragrance, haircare, skincare, bath and body products, and salon styling tools. The company’s estimated earnings growth rate for this year is 23.5%.
Urban Outfitters Inc. (URBN - Free Report) is a lifestyle specialty retail company that engages in the retail and wholesale of general consumer products. The company’s estimated earnings growth rate for this year stands at 16.1%.
SkyWest Inc. (SKYW - Free Report) , through its subsidiaries, operates a regional airline in the United States. The company’s estimated earnings growth rate for this year is pegged at 33.8%.
NetEase, Inc. (NTES - Free Report) operates an interactive online community in the Peoples Republic of China. The company has Online Game Services; Advertising Services; and E-mail, E-commerce and Others segments. NetEase’s estimated earnings growth rate for this year is 45.6%.
Dycom Industries Inc. (DY - Free Report) provides specialty contracting services in the United States and Canada. The company’s estimated earnings growth rate for this year stands at 17.4%.
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 »