Investors are always on the lookout for stocks that are ready to make a significant jump. For that to happen, finding out stocks with consistent earnings growth is imperative. This is because earnings not only serve as the indicator of a company’s profitability but also influence the share price. Generally, better-than-expected earnings growth leads to an upsurge in the share price.

But, there is another metric called earnings acceleration, which works even better in boosting the share price. Studies have shown that the majority of successful stocks had seen acceleration in earnings before their positive price moves. So, what exactly is earnings acceleration?

Earnings Acceleration for Future Outperformers

Basically, earnings acceleration is the incrementally growing earnings per share (EPS) of a company. Or, in other words, it is the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time.

But, why is it better than earnings growth? This is simply because in case of earnings you pay for something that has already been reflected in the stock price. However, in case of earnings acceleration you select stocks that haven’t caught the attention of the investors yet, which once secured will invariably lead to an uptick in the share price.

Increase in the percentage of earnings growth makes us believe that the company is in sound shape and has been on the right track for a consistent period of time. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to tank.

Hence, investment in stocks having solid earnings acceleration is a profitable strategy as it considers both the direction and magnitude of growth rates.

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.

EPS % Projected Growth (Q1)/(Q0) greater than EPS % Growth (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) has to be greater than the growth rate from the completed quarter (Q0) over one quarter ago (Q-1).

EPS % Growth (Q0)/(Q-1) greater than EPS % Growth (Q-1)/(Q-2): The growth rate for the completed quarter (Q0) over one quarter ago (Q-1) has to be greater than the growth rate from one quarter ago (Q-1) over two quarters ago (Q-2).

EPS % Growth (Q-1)/(Q-2) greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) over two quarters ago (Q-2) has to be greater than the growth rate from two quarters ago (Q-2) over three quarters ago (Q-3).

In addition to this, we have added the following parameters:

Current Price greater than or equal to $5: This screens out the low-priced stocks.

Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.

The above criteria narrowed down the universe of over 7,747 stocks to only 9. Here are the top 5 stocks:

ArcelorMittal (MT - Analyst Report) operates as an integrated steel and mining company across the world. MT’s products include slabs, plates, electro-galvanized coils and sheets, tinplate and color coated coils and sheets, and welded pipes and tubes. The company’s estimated earnings growth rate for this year is more than 100%.

Dynamic Materials Corp. (BOOM - Snapshot Report) operates in the energy, industrial and infrastructure markets throughout the world. BOOM operates in two segments, NobelClad and DynaEnergetics. The company’s estimated earnings growth rate for this year is above 100%.

Randgold Resources Limited (GOLD - Snapshot Report) explores and develops gold deposits in Sub-Saharan Africa. GOLD holds interests in the Morila gold mine, the Loulo gold mine and the Gounkoto gold mine that are located in Mali, West Africa. The company’s estimated earnings growth rate for this year is 46.4%.

Broadridge Financial Solutions, Inc. (BR - Snapshot Report) provides investor communications and technology-driven solutions for the financial services industry worldwide including the U.S. The company’s estimated earnings growth rate for this year is 10.5%.

Hexcel Corp. (HXL - Snapshot Report) manufactures and sells structural materials for use in commercial aerospace, space and defense, and industrial markets. The company’s estimated earnings growth rate for this year is 7.7%.