Tirthankar Chakraborty Zacks
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 frame of time, it can be called earnings acceleration.
Studies have shown that a majority of successful stocks had seen acceleration in earnings before an uptick in the stock price. In 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 caught the attention of investors yet, which once secured will invariably lead to a rally in the share price. This is because earnings acceleration considers both direction and magnitude of growth rates.
Increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period of time. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drag prices down.
Let’s look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the growth rates of the previous periods. 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 21. Here are the five stocks that stand out:
Cinemark Holdings Inc CNK is a leader in the motion picture exhibition industry. The company has a Zacks Rank #3 (Hold). The company’s expected earnings growth rate for the current year is 29.5%.
Alpha Metallurgical Resources, Inc. AMR is a mining company with operations principally in Virginia and West Virginia. The company has a Zacks Rank #3. Its expected earnings growth rate for the current year is 112.5%.
Atlantica Yield PLC AY owns, manages and acquires a diversified portfolio of contracted assets in the power and environment sectors. The company has a Zacks Rank #3. Its expected earnings growth rate for the current year is 733.3%.
Steven Madden, Ltd. SHOO designs, sources, markets and sells fashion-forward name brand and private label footwear for women, men, and children and private label fashion handbags and accessories across the world. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current year is 225%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Centennial Resource Development, Inc. CDEV is an independent oil and natural gas company. The company has a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 120.3%.
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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.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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