Dropbox (DBX - Free Report) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.
The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this online file-sharing company, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For Dropbox, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
For the current quarter, the company is expected to earn $0.16 per share, which is a change of +60% from the year-ago reported number.
The Zacks Consensus Estimate for Dropbox has increased 37.5% over the last 30 days, as two estimates have gone higher compared to no negative revisions.
Current-Year Estimate Revisions
For the full year, the earnings estimate of $0.74 per share represents a change of +48% from the year-ago number.
The revisions trend for the current year also appears quite promising for Dropbox, with three estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 380%.
Favorable Zacks Rank
Thanks to promising estimate revisions, Dropbox currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Investors have been betting on Dropbox because of its solid estimate revisions, as evident from the stock's 13.6% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.