As we are in the thick of the first-quarter earnings season, investors should search for stocks that are ready to make a big move. Significant earnings growth generally leads to a jump in share price, but earnings acceleration works even better in boosting the stock price.
Earnings acceleration is basically incrementally growing EPS of a company. In other words, if the rate of a company’s quarter-over-quarter earnings growth increases over a considerable period, it is termed as earnings acceleration.
If you pick a stock just by focusing on the company’s earnings growth then you are paying for something that has already been reflected in the stock price. Earnings acceleration, on the other hand, considers both direction and magnitude of growth rates. This helps you in betting on a stock that is yet to see significant attention of investors, and consequently a solid price increase.
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. 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.
Hence, earnings acceleration should be viewed as a key metric for share price outperformance.
Screening Parameters:
Let’s look for stocks for which last two quarter-over-quarter percentage EPS growth rates are more than the growth rates of the previous periods. The projected quarter-over-quarter percentage EPS growth rate is 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:
Current Price greater than or equal to $5: This screens out the low priced stocks.
Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.
Here are five of the 15 stocks made it through the screen:
Vertex Pharmaceuticals Incorporated ( (NASDAQ:VRTX) )
FLIR Systems, Inc. ( (NASDAQ:FLIR) )
Medtronic plc ( (NYSE:MDT) )
Cirrus Logic Inc. ( (NASDAQ:CRUS) )
HollySys Automation Technologies, Ltd. ( (NASDAQ:HOLI) )
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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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CIRRUS LOGIC (CRUS): Free Stock Analysis Report
FLIR SYSTEMS (FLIR): Free Stock Analysis Report
HOLLYSYS AUTOMT (HOLI): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
VERTEX PHARM (VRTX): Free Stock Analysis Report
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