Regardless of whether it is a young company or a renowned corporation, unswerving earnings growth is the highest priority for the top brass of any organization. And why not? If the company doesn’t make money, it won’t last over the long haul. Consider a company’s revenues over a given period of time, subtract the cost of production, and you have earnings.
This metric is also considered to be the most noteworthy variable in influencing the share price. But, expectations of earnings also play a significant role in influencing the price of a stock.
Earnings Estimates Determine Share Prices
We have often seen a decline in the stock price despite earnings growth and a rally in the price following an earnings decline. This is largely a result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinion 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.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to buy stocks that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
In order 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 thirteen. Here are the top four stocks:
Ruth’s Hospitality Group, Inc. RUTH develops, operates, and franchises fine dining restaurants under the Ruth’s Chris Steak House name. The company carries a Zacks Rank #2 (Buy). Its estimated growth rate for this year is 26.4%, higher than the industry’s increase of 8.5%.
Best Buy Co., Inc. BBY operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company carries a Zacks Rank #2. Its estimated growth rate for this year is 13.4%, higher than the industry’s rise of 12.9%.
Radian Group Inc. RDN provides mortgage and real estate products and services in the United States. The company carries a Zacks Rank #1 (Strong Buy). Its estimated growth rate for this year is 39.6%, higher than the industry’s rally of 21.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Capital City Bank Group, Inc. CCBG operates as the bank holding company for Capital City Bank that provides a range of banking and banking-related services to individual and corporate clients in Florida, Georgia, and Alabama. The company carries a Zacks Rank #2. Its estimated growth rate for this year is 35.2%, higher than the industry’s growth of 30.7%.
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The Research Wizard is a great place to begin. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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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