Top executives and analysts are drawn to consistent earnings growth as it signals a company's profitability, but earnings acceleration is even more effective at boosting the stock price.
Studies have shown that most successful stocks have seen earnings acceleration before an uptick in the stock price. To that end, Prairie Operating Co. PROP, Intuit Inc. INTU and Cardinal Health, Inc. CAH are exhibiting strong earnings acceleration.
Earnings acceleration is the incremental growth in a company’s earnings per share (EPS). In other words, if a company’s quarter-over-quarter earnings growth rate increases within a stipulated time frame, it can be called earnings acceleration.
In the case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps spot stocks that haven’t yet caught the attention of investors and, once secured, will invariably lead to a rally in the share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.
An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may drag prices down.
Look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the previous periods’ growth rates. The projected EPS growth rates for the upcoming quarter are expected to exceed those of prior periods.
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 the universe of around 7,735 stocks to only 13. Here are the top three stocks:
Prairie Operating is an independent energy company. It currently has a Zacks Rank #1 (Strong Buy). PROP’s expected earnings growth rate for the current year is 81.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuit offers financial management, compliance and marketing products/services in the United States. It currently has a Zacks Rank #3 (Hold). INTU’s expected earnings growth rate for the current year is 13.8%.
Cardinal Health is a global healthcare services and products company. It currently has a Zacks Rank #2 (Buy). CAH’s expected earnings growth rate for the current year is 5.4%.
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