Earnings are a measure of the money a company is making. Thus, companies exhibiting continuous earnings growth will continue to enthrall almost everyone in the investment world, from top brass to research analysts.
Still, earnings acceleration works better when it comes to lifting the stock price. Studies have shown that most successful stocks have seen an acceleration in earnings before an uptick in the stock price. Some of the notable companies to have witnessed solid earnings acceleration as of now are Amicus Therapeutics FOLD, Genius Sports Limited GENI and Viad Corp VVI.
Earnings acceleration is the incremental growth in a company’s earnings per share (EPS). In other words, if the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated time frame, it can be called earnings acceleration.
In the case of earnings growth, you pay for something that is already reflected in the stock price. But earnings acceleration helps spot stocks that haven’t yet caught the attention of investors. Once secured, it will invariably lead to a rally in the share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.
An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may sometimes drag prices down.
Screening Parameters
Let us look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the previous periods’ growth rates. 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 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 around 7,735 stocks to only 13. Here are three of the 13 stocks that are worth a look:
Amicus Therapeutics is a global patient-centric biotechnology company. The company currently has a Zacks Rank #3 (Hold). FOLD’s expected earnings growth rate for the current year is 47.6%.
Genius Sports Limited provides digital sports content, technology and integrity services. The company currently has a Zacks Rank #3. GENI’s expected earnings growth rate for the current year is 43.6%.
Viad Corp is an experiential services company with operations in the United States, Canada, the United Kingdom, continental Europe and the United Arab Emirates. The company currently has a Zacks Rank #3. VVI’s expected earnings growth rate for the current year is 56.3%.
Amicus Therapeutics, Inc. (FOLD): Free Stock Analysis Report
Viad Corp (VVI): Free Stock Analysis Report
Genius Sports Limited (GENI): Free Stock Analysis Report
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