Irrespective of whether it is a start-up or an established company, earnings growth is the highest priority for the top brass of any organization. This is because if the company doesn’t make money, it won’t stand the test of time. 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 noteworthy variable in influencing the share price. But, expectations of earnings also play a significant role in influencing the price of a stock.
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.
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' '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 four. Here are the stocks:
The Estée Lauder Companies Inc. EL manufactures and markets skin care, makeup, fragrance, and hair care products. The company currently has a Zacks Rank #2 (Buy). The company’s estimated earnings growth rate for this year is nearly 12% versus the Cosmetics industry’s expected increase of 2.3%.
America's Car-Mart, Inc. CRMT operates as an automotive retailer in the United States. The company primarily sells older model used vehicles and provides financing for its customers. The company currently has a Zacks Rank #1 (Strong Buy). The company’s estimated earnings growth rate for this year is 19.1% versus the Automotive - Retail and Whole Sales industry’s estimated increase of 13.9%.
B2Gold Corp. BTG engages in the exploration and development of mineral properties for gold deposits in Nicaragua, the Philippines, Mali, Colombia, Burkina Faso, and Namibia. The company currently has a Zacks Rank #2. The company’s estimated earnings growth rate for this year is 25% versus the Mining - Gold industry’s expected increase of 19.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Jacobs Engineering Group Inc. JEC provides technical, professional, and construction services. The company currently has a Zacks Rank #2. The company’s estimated earnings growth rate for this year is 8.5% versus the Engineering - R and D Services industry’s expected increase of 1.1%.
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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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America's Car-Mart, Inc. (CRMT) : Free Stock Analysis Report
Jacobs Engineering Group Inc. (JEC) : Free Stock Analysis Report
The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
B2Gold Corp (BTG) : Free Stock Analysis Report
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