Regardless of whether it is a young company or a renowned corporation, unswerving earnings growth is the highest priority for the top brass of any organization. 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 to be 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.
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 nine. Here are the top four stocks:
Ollie's Bargain Outlet Holdings, Inc. OLLI operates as a retailer of brand name merchandise. The company carries a Zacks Rank #2 (Buy). Its estimated growth rate for this year is 24.4%, higher than the industry’s gain of 7.4%.
Dollar Tree, Inc. DLTR operates variety retail stores in the United States and Canada. It operates in two segments, Dollar Tree and Family Dollar. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 26.6%, higher than the industry’s gain of 13.4%.
Align Technology, Inc. ALGN designs, manufactures, and markets a system of clear aligner therapy, intra-oral scanners, and computer-aided design and computer-aided manufacturing (CAD/CAM) digital services. Align Technology sports a Zacks Rank #1 (Strong Buy). Its estimated growth rate for this year is 50.3%, higher than the industry’s gain of 10.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Broadcom Limited AVGO designs, develops, and supplies a range of semiconductor devices worldwide. The stock has a Zacks Rank #2. The company’s estimated growth rate for this year is 11.6%, higher than the industry’s gain of 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.
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Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
Broadcom Limited (AVGO) : Free Stock Analysis Report
Align Technology, Inc. (ALGN) : Free Stock Analysis Report
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
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