5 Stocks To Make The Most Of Their Earnings Acceleration

Why is everyone, right from the top brass to research analysts, excited about earnings? This is simply because earnings are a measure of the money a company is making. In other words, take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings! It not only determines how affluent the company’s shareholders are, but also influences a company’s share price. Better-than-expected earnings results mostly lead to an uptick in the share price.

In addition to actual earnings, here is another metric called earnings acceleration, which works even better in lifting the stock price.

Spot Future Outperformers with Earnings Acceleration

Earnings acceleration is basically the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time. In other words, it is the incremental growth in earnings per share of a company.

But why is it better than earnings growth? This is because in case of earnings acceleration you select stocks that haven’t caught the attention of investors yet and consequently  are on the verge of price appreciation. Earnings acceleration considers both the direction and the magnitude of growth rates. Conversely, in case of earnings growth you pay for something that has already been reflected in the stock price.

More often than not the difference between good stocks and great stocks is determined by the increase in the percentage of earnings growth. This makes us believe that the company is in sound shape and has been on the right track for a consistent period of time. On the other hand, sideways percentage of earnings growth can potentially signal a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times send prices down.

Hence, investment in stocks having solid earnings acceleration is a profitable strategy.

The Winning Strategy

Let’s look for stocks for which the last two quarter-over-quarter percentage EPS growth rates are more than the growth rates of the previous periods. The projected quarter-over-quarter percentage EPS growth rates are also expected to be higher than the previous periods’ growth rates.

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