To determine earnings, analyze revenues minus production costs. Earnings growth is crucial for all companies as survival hinges on profitability. Earnings are also considered the most important variable influencing share price. However, expectations of earnings play a striking role.
Nonetheless, stocks such as The Cheesecake Factory Incorporated CAKE, LeMaitre Vascular, Inc. LMAT and Huron Consulting Group Inc. HURN are currently exhibiting superb earnings growth.
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 be on the lookout 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.
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 seven. Here are the top three stocks:
The Cheesecake Factory operates and licenses restaurants in the United States and Canada. The company’s expected earnings growth rate for the current year is 7.9%. CAKE currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
LeMaitre Vascular makes medical devices for vascular surgery globally. The company’s expected earnings growth rate for the current year is 16.6%. LMAT currently has a Zacks Rank #1.
Huron Consulting Group offers consultancy and managed services nationally and globally. The company’s expected earnings growth rate for the current year is 10.5%. HURN currently has a Zacks Rank #2.
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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.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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The Cheesecake Factory Incorporated (CAKE) : Free Stock Analysis Report
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LeMaitre Vascular, Inc. (LMAT) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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