Earnings growth interests all, right from the top brass to research analysts. And why not? If the company doesn’t make money, it won’t be able to stand the test of time. Take a company’s revenues over a given period of time, deduct production cost and you will have earnings!
This metric is also considered to be the most noteworthy variable in influencing the share price. However, in addition to actual earnings, expectations of earnings play a significant role in influencing the price of a stock.
Earnings Estimates Determine Share Price
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.
Earnings estimates embody analysts’ opinion on factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important 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 have added the following parameters:
Zacks Rank less than or equal to 2 (Only Zacks Rank Buy and Strong Buy 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 with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw 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 being revised higher in the last 4 weeks).
The above criteria narrowed down the universe of around 7,839 stocks to only 16. Here are the top five stocks:
Ulta Beauty, Inc. (ULTA - Free Report) operates as a beauty retailer in the United States. The company has a Zacks Rank #2 (Buy). The company’s estimated growth rate for this year is 31.9%, compared with the Retail - Miscellaneous industry’s gain of 12.6%.
Century Communities, Inc. (CCS - Free Report) engages in the development, design, construction, marketing, and sale of single-family attached and detached homes. The company has a Zacks Rank #1 (Strong Buy). The company’s estimated growth rate for this year is 47%, compared with the Building Products - Home Builders industry’s gain of 31.1%.
NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company worldwide. The company has a Zacks Rank #1. The company’s estimated growth rate for this year is 60.6%, compared with the Semiconductor - General industry’s gain of 23.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cheniere Energy Partners LP Holdings, LLC (CQH - Free Report) develops, constructs, owns, and operates liquefied natural gas (LNG) regasification facilities at the Sabine Pass LNG terminal located on the Sabine-Neches Waterway. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 325.5%, compared with the Oil and Gas - Production and Pipelines industry’s gain of 15.3%.
The Progressive Corporation (PGR - Free Report) provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services. The company has a Zacks Rank #1. The company’s estimated growth rate for this year is 51.7%, compared with the Insurance - Property and Casualty industry’s gain of 24.3%.
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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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