Whether it is a start-up or a well-known company, earnings growth is the priority for any organization. This is because if the company doesn’t make money, it won’t last long.
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 critical 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 essentially 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 look 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.
Screening Measures:
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 the universe of around 7,839 stocks to only three. Here are the stocks:
AutoZone AZO is one of the leading specialty retailers and distributors of automotive replacement parts and accessories in the United States. AutoZone has a Zacks Rank #2 (Buy). AZO’s expected earnings growth rate for the current year is 11.5%.
Titan Machinery TITN represents a diversified mix of agricultural, construction and consumer products dealerships located in the upper Midwest. Titan Machinery has a Zacks Rank #1. TITN’s expected earnings growth rate for the current year is 10.2%.
Charles River Associates CRAI is one of the leading global consulting firms. Charles River Associates has a Zacks Rank #2. CRAI’s expected earnings growth rate for the next year is 12.8%.
Charles River Associates (CRAI): Free Stock Analysis Report
AutoZone, Inc. (AZO): Free Stock Analysis Report
Titan Machinery Inc. (TITN): Free Stock Analysis Report
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This article originally appeared on Zacks
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