Earnings growth enthralls all, right from the top brass to research analysts. This is simply because if a company doesn’t make money, it won’t be able to survive for long. 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 six. Here are the top four stocks:
Lululemon Athletica Inc. (LULU - Free Report) , an athletic apparel company, together with its subsidiaries, 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 42.5% versus the Textile - Apparel industry’s expected increase of 20.5%.
RH (RH - Free Report) operates as a retailer in the home furnishings. The company has a Zacks Rank #1 (Strong Buy). The company’s estimated growth rate for this year is 167.9% versus the Retail - Home Furnishings industry’s anticipated increase of 10.1%.
Celanese Corporation (CE - Free Report) is a technology and specialty materials company. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 47.9% versus the Chemical - Specialty industry’s projected increase of 12.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
SYNNEX Corporation (SNX - Free Report) provides business process services in North and South America, the Asia-Pacific, Europe, and internationally. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 15.4% versus the Business - Software Services industry’s projected increase of 12.5%.
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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