Regardless of the fact whether it is a young or an established corporation, consistent earnings growth is what everyone looks out for. And why not? If a company doesn’t make money, it won’t survive over the long haul.
Take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings! 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. However, in addition to actual earnings, expectations of earnings play a vital role in determining the share price movement.
How Earnings Estimates Determine Share Prices?
On several occasions, companies have seen a decline in share price despite earnings growth or for that matter a stock price has even surged following an earnings decline. This happens when a company’s earnings fail to meet market expectations.
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.
Hence, it is important for investors to buy stocks that have 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.) You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 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 7,741 stocks to only 17. Here are the top 5 stocks:
Lancaster Colony Corp. (LANC - Free Report) is a manufacturer and marketer of specialty food products for the retail and foodservice channels. The company’s estimated earnings growth rate for this year is 7.3%. The Zacks Consensus Estimate for its current year earnings increased 3.5% over the last 60 days.
Foot Locker, Inc. (FL - Free Report) operates as an athletic shoes and apparel retailer. The company’s estimated earnings growth rate for this year is 10.8%. The Zacks Consensus Estimate for its current year earnings advanced 0.8% over the last 90 days.
ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) operates as a specialty retailer in the U.S. The company’s estimated earnings growth rate for this year is 26.2%. The Zacks Consensus Estimate for its current year earnings rose 0.9% over the last 60 days.
Sucampo Pharmaceuticals, Inc. is a biopharmaceutical company that focuses on the research and development of proprietary drugs for the treatment of gastrointestinal, ophthalmic, autoimmune, and oncology-based inflammatory disorders. The company’s estimated earnings growth rate for this year is 23.2%. The Zacks Consensus Estimate for its current year earnings increased 18.4% over the last 60 days.
Fox Factory Holding Corp (FOXF - Free Report) designs, engineers, manufactures, and markets ride dynamics products worldwide. The company’s estimated earnings growth rate for this year is 20.4%. The Zacks Consensus Estimate for its current year earnings rose 6.1% over the last 60 days.
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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
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