Regardless of whether it is a start-up or a renowned company, earnings growth is the highest priority for any organization. This is because if the company doesn’t make money, it won’t last in the long run.
So, what’s earnings growth? Study a company’s revenues over a given period, subtract the production cost, and you have earnings. By the way, this is also considered the most important variable influencing the share price. But, expectations of earnings play a noteworthy role.
Earnings Estimates & Share Price Movements
Frequently, we have seen a decline in the stock price despite earnings growth and a rally in price following an earnings decline. This is largely the result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinions 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.
Thus, investors should be on the lookout for stocks ready to make a big move. Hence, investors need to buy stocks with historical earnings growth and are seeing a rise in quarterly and annual earnings estimates.
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 20. Here are the top four stocks that stand out:
Deckers Outdoor DECK is a leading designer, producer, and brand manager of innovative, niche footwear and accessories developed for outdoor sports, and other lifestyle-related activities. The company has a Zacks Rank #2 (Buy). DECK’s expected earnings growth rate for the current year is 11.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
e.l.f. Beauty ELF operates as a cosmetic company. The company currently sports a Zacks Rank #1. ELF’s expected earnings growth rate for the current year is 34.5%.
MSCI MSCI provides investment decision support tools, including indexes; portfolio construction, and risk management products and services. The company presently carries a Zacks Rank #2. MSCI’s expected earnings growth rate for the current year is 13.9%.
NRG Energy NRG is engaged in producing, selling, and delivering energy and energy products and services to residential, industrial, and commercial consumers in major competitive power markets in the United States. The company currently has a Zacks Rank #1. NRG’s expected earnings growth rate for the current year is 45.9%.
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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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