Earnings growth enthralls almost everyone, right from the top brass to research analysts. And why not? If the company doesn’t make money, it won’t last over the long haul. Consider a company’s revenues over a given period of time, subtract the cost of production and you have earnings.
This metric is also considered the most important variable in influencing the share price. But, expectations of earnings also play a significant role.
Earnings Estimates Determine 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.
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 for investors to buy stocks that have 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 positive estimate revisions, we have 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.)
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 revised higher in the last 4 weeks).
The above criteria narrowed down the universe of around 7,839 stocks to only 15. Here are the top four stocks:
Lululemon Athletica Inc. (LULU - Free Report) designs, distributes, and retails athletic apparel and accessories for women, men, and female youth. The company has a Zacks Rank #2 (Buy). The company’s estimated growth rate for this year is 22.8% versus the Textile - Apparel industry’s expected increase of 13.1%.
Domino's Pizza, Inc. (DPZ - Free Report) operates as a pizza delivery company in the United States and internationally. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 53.8% versus the Retail - Restaurants industry’s projected growth of 14.7%.
Burlington Stores, Inc. (BURL - Free Report) operates as a retailer of branded apparel products in the United States. The company has a Zacks Rank #2. The company’s projected growth rate for this year is 36.8% versus the Retail - Discount Stores industry’s estimated increase of 18.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Align Technology, Inc. (ALGN - Free Report) designs, manufactures, and markets a system of clear aligner therapy, intraoral scanners, and computer-aided design and computer-aided manufacturing (CAD/CAM) digital services. The company has a Zacks Rank #1 (Strong Buy). The company’s estimated growth rate for this year is 21.6% versus the Medical - Dental Supplies industry’s projected growth of 5.9%.
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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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