Irrespective of whether it is a young or renowned company, unswerving 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 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 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 five. Here are the stocks:
Five Below, Inc. FIVE operates as a specialty value retailer in the United States. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current quarter and year are 5.6% and 43.6%, respectively.
Apple Inc. AAPL designs, manufactures, and markets mobile communication and media devices, and personal computers to consumers, and small and mid-sized businesses; and education, enterprise, and government customers worldwide. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current quarter and year are 33.8% and 27.1%, respectively.
Science Applications International Corporation SAIC provides technical, engineering, and enterprise information technology (IT) services primarily in the United States. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current quarter and year are 19.6% and 28.3%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MGIC Investment Corporation MTG provides private mortgage insurance and ancillary services to lenders and government sponsored entities in the United States. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current quarter and year are 12.5% and 16.9%, respectively.
EastGroup Properties, Inc. EGP is a self-administered equity real estate investment trust. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current quarter and year are 5.6% and 8.5%, respectively.
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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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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION (SAIC) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
MGIC Investment Corporation (MTG) : Free Stock Analysis Report
Five Below, Inc. (FIVE) : Free Stock Analysis Report
EastGroup Properties, Inc. (EGP) : Free Stock Analysis Report
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