Earnings are basically revenues that the company generates after deducting the cost of production over a given period of time. Regardless of the fact whether it is a fledgling company or an established corporation, consistent earnings growth is what everyone looks for. And why not? If the company doesn’t make money then it won’t last in the long run and will eventually run out of steam.
This metric is also considered to be the most significant variable in influencing the share price. Better-than-expected earnings performances normally lead to a rally in the share price. In addition to actual earnings, expectations of earnings also play a significant role in influencing the price of a stock.
Earnings Estimates & Share Prices
We have often seen a decline in the stock price despite earnings growth and a rally in the price following an earnings decline. This is largely a result of a company’s earnings failing to meet market expectations.
So, what are earnings estimates? Earnings estimates embody analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost controls. Thus, earnings estimates are a valuable tool for investors. Analysts can also examine the cash flow based on these periodic earnings estimates to determine the fair value of the company.
Here, we have picked stocks that have displayed historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
In order to shortlist stocks that have striking earnings growth and are witnessing positive estimate revisions, we added the following parameters:
Zacks Rank less than or equal to 2: Only Zacks Rank #1 (Strong Buy) and 2 (Buy) stocks 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 over 7,674 stocks to only four. Here are the stocks:
Mohawk Industries, Inc. (MHK - Analyst Report) is a flooring manufacturer that creates products for residential and commercial spaces around the world. The company’s estimated earnings growth rate for this year is 22.1%.
Five Below Inc (FIVE - Snapshot Report) is a specialty retailer offering a range of merchandise for teen and pre-teen customer. The company’s estimated earnings growth rate for this year is pegged at 25.1%.
A. O. Smith Corp (AOS - Analyst Report) manufactures and markets a range of water heaters, boilers, and other products for residential and commercial end markets in the United States, China, Canada, Europe, and India. The company’s estimated earnings growth rate for this year stands at 14.9%.
Copart, Inc. (CPRT - Analyst Report) is a provider of online auctions and vehicle remarketing services in the United States, Canada, the United Kingdom, the United Arab Emirates, Oman, Bahrain and Brazil. The company’s estimated earnings growth rate for this year is 14.1%.
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 »