Benzinga - by Zacks, Benzinga Contributor.
Earnings growth is the highest priority for any organization. This is because if a start-up or well-known company doesn't make money, it won't last long.
So, what is 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 share price. But, expectations of earnings play a significant 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 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 eight. Here are the best four stocks that stand out:
Skechers (NYSE: SKX) designs, develops, markets and distributes footwear for men, women and children. The company has a Zacks Rank #1 (Strong Buy). SKX's expected earnings growth rate for the current year is 16.9%.
Chipotle Mexican Grill (NYSE: CMG) operates quick-casual and fresh Mexican restaurant chains. The company has a Zacks Rank #2 (Buy). CMG's expected earnings growth rate for the current year is 23.3%.
Wells Fargo & Company (NYSE: WFC) is one of the largest financial services companies in the United States. The company has a Zacks Rank #2. WFC's expected earnings growth rate for the next year is 9.5%.
Palomar Holdings (NASDAQ: PLMR) is an insurance holding company. The company sports a Zacks Rank #1. PLMR's expected earnings growth rate for the current year is 26%.
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.
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