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Earnings growth enthralls almost everyone, right from the top brass to research analysts. But the question here is why? This is simply because earnings measure the amount of cash a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!
Better-than-expected earnings results mostly lead to an uptick in the share price. However, studies have shown that a majority of successful stocks had seen acceleration in earnings before a positive stock price moves. This is why instead of looking only at the most recent quarter’s earnings growth, one should consider the company’s earnings acceleration as well.
Want to Spot the Outperformers?
In case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps one find stocks that haven’t caught the attention of investors yet, and which, once secured, will invariably lead to an uptick in the share price. Why so? This is because earnings acceleration considers both direction and magnitude of growth rates. Hence, earnings acceleration should be viewed as a key metric for share price outperformance.
Earnings acceleration is basically the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time. In other words, it is the incremental growth in earnings of a company.
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. On the other hand, sideways percentage of earnings growth can potentially signal a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drags prices down.
Screening Parameters:
Let’s look for stocks for which 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 rate is 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:
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.
Here are five of the 21 stocks that made it through the screen:
Johnson Controls International plc (JCI - Free Report) operates as a diversified technology and industrial company worldwide. The company’s estimated earnings growth rate for this year is 37.4%.
NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company worldwide. It operates through two segments, GPU and Tegra Processor. The company’s estimated earnings growth rate for this year is 71.1%.
Live Nation Entertainment, Inc. (LYV - Free Report) functions as a live entertainment company. It operates through Concerts, Ticketing, Artist Nation, and Sponsorship & Advertising segments. The company’s estimated earnings growth rate for this year is 70.7%.
Wyndham Worldwide Corporation provides hospitality services and products to individual consumers and business customers worldwide. It operates through three segments: Hotel Group, Destination Network and Vacation Ownership. The company’s estimated earnings growth rate for this year is 12.1%.
Cliffs Natural Resources Inc. (CLF - Free Report) is a mining and natural resources company that produces and supplies iron ore. The company’s estimated earnings growth rate for this year is 231.5%.
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 Accelerating Earnings
Earnings growth enthralls almost everyone, right from the top brass to research analysts. But the question here is why? This is simply because earnings measure the amount of cash a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!
Better-than-expected earnings results mostly lead to an uptick in the share price. However, studies have shown that a majority of successful stocks had seen acceleration in earnings before a positive stock price moves. This is why instead of looking only at the most recent quarter’s earnings growth, one should consider the company’s earnings acceleration as well.
Want to Spot the Outperformers?
In case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps one find stocks that haven’t caught the attention of investors yet, and which, once secured, will invariably lead to an uptick in the share price. Why so? This is because earnings acceleration considers both direction and magnitude of growth rates. Hence, earnings acceleration should be viewed as a key metric for share price outperformance.
Earnings acceleration is basically the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time. In other words, it is the incremental growth in earnings of a company.
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. On the other hand, sideways percentage of earnings growth can potentially signal a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drags prices down.
Screening Parameters:
Let’s look for stocks for which 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 rate is 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:
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.
Here are five of the 21 stocks that made it through the screen:
Johnson Controls International plc (JCI - Free Report) operates as a diversified technology and industrial company worldwide. The company’s estimated earnings growth rate for this year is 37.4%.
NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company worldwide. It operates through two segments, GPU and Tegra Processor. The company’s estimated earnings growth rate for this year is 71.1%.
Live Nation Entertainment, Inc. (LYV - Free Report) functions as a live entertainment company. It operates through Concerts, Ticketing, Artist Nation, and Sponsorship & Advertising segments. The company’s estimated earnings growth rate for this year is 70.7%.
Wyndham Worldwide Corporation provides hospitality services and products to individual consumers and business customers worldwide. It operates through three segments: Hotel Group, Destination Network and Vacation Ownership. The company’s estimated earnings growth rate for this year is 12.1%.
Cliffs Natural Resources Inc. (CLF - Free Report) is a mining and natural resources company that produces and supplies iron ore. The company’s estimated earnings growth rate for this year is 231.5%.
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 »