A stock's earnings history is one of the most important things to look at when scouting for potential trade candidates.
Always insist that a company shows a strong track record of profit growth.
But what's also paramount is what's to come. That's why investors should also pay attention to full-year earnings estimates.
While a robust record of growth is a good thing to see, the past is the past. What lies ahead for the going concern will often determine whether the stock becomes a big winner or not.
Full-year earnings estimates can give investors the heads-up on big growth companies for the upcoming year or two.
Where do these earnings estimates come from
Analysts from major brokerage and investment research firms do the legwork to forecast the potential earnings figures of companies. They meet with company management, listen to conference calls, talk with suppliers and customers, and research the products and services they sell. They pore over financial statements and study industry trends.
Granted, analysts can be conservative in their estimates. That said, investors should seek projections of 15% and higher. Generally, it's better to demand more. According to the A in , annual profit growth should be at least 25% each year.
Also, note that earnings estimates are not set in stone. They can change depending on new announcements, or after the release of a company's quarterly results.
Annual earnings estimates are found in a number of places in IBD, eIBD and online at Investors.com. Investors can also get estimates from vendors such as Thomson-Reuters, S&P Capital IQ and Factset.
Published Mondays and Wednesdays, the IBD 50 shows the annual EPS percentage change estimates for each stock.
In the March 25 edition of the IBD 50, mortgage servicer Ocwen Financial (OCN) showed an annual EPS estimate of +246% — the best among the IBD 50 stocks. Ocwen is growing as major banks move out of the mortgage servicing business.
Car rental giant Hertz Global (HTZ)had an annual earnings percent change projection of 42%.
And analysts saw CommVault Systems' (CVLT) full-year profit rising 39%. The software firm is benefiting from the Big Data trend.
- Investment & Company Information