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Looking for Accelerating Earnings Growth? 3 Solid Picks

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Earnings are essentially revenues that the company generates after deducting the cost of production over a given period of time. Earnings growth enthralls almost everyone, right from the top brass to research analysts.

Better-than-expected earnings results mostly lead to an uptick in the share price. Studies, however, have shown that a majority of successful stocks had seen acceleration in earnings before a positive stock price movement. Hence, earnings acceleration works even better in lifting the stock price.

Spot the Outperformers

In case of earnings growth, you pay for something that is already reflected in the stock price. But, earnings acceleration helps spot stocks that haven’t caught the attention of investors yet, which once secured will invariably lead to a rally in the share price. This is because earnings acceleration considers both direction and magnitude of growth rates.

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.

Increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period of time. Sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drag prices down.

This is the reason why earnings acceleration should be viewed as a key metric for share price outperformance.

Screening Parameters:

Let’s pick stocks for which the last two quarter-over-quarter percentage EPS growth rates have been 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.

Zacks Rank equal to 2 (Only Zacks' '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.

The above criteria narrowed down the universe of around 7,676 stocks to only 31. Here are the top three stocks:

Verisign, Inc. (VRSN - Free Report) is a provider of domain name registry services and Internet security. The company operates through the Registry Services and Security Services segment. The Zacks Consensus Estimate for its current year earnings increased 1.1% over the last 60 days. The company’s projected earnings growth for this year is a solid 8.9%.

58.com Inc is a holding company. The company's business consists of online classifieds and listing platforms. The Zacks Consensus Estimate for its current year earnings soared more than 100% in the last 60 days. The company’s projected earnings growth for this year is a whopping 157.9%.

RPC, Inc. (RES - Free Report) is a holding company for several oilfield services companies. The company provides a range of specialized oilfield services and equipment primarily to independent oil and gas companies. The Zacks Consensus Estimate for its current year earnings surged over 100% in the last 60 days. The company’s projected earnings growth for this year is a stellar 194.2%.

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

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VeriSign, Inc. (VRSN) - free report >>

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