Continued revenue growth fascinates just about everyone, from upper management to research analysts, because revenue is a measure of the money a company is making.
Yet, accelerating earnings are even more effective when stock prices are rising: Research has shown that most successful stocks have seen accelerating earnings before their share prices have risen.
Earnings acceleration is the incremental growth of a company’s earnings per share. In other words, if a company’s quarterly earnings growth rate increases over a defined period of time, it can be said to be earnings acceleration.
With earnings growth, you’re paying for what’s already reflected in the stock price. Earnings acceleration, however, helps you find stocks that aren’t getting investor attention and, once secured, is sure to lead to higher stock prices. This is because earnings acceleration takes into account both the direction and magnitude of the growth rate.
Rising earnings growth means the company is fundamentally healthy and has been on the right track for a significant period of time, whereas flat earnings growth could signal a period of consolidation or slowdown, and if earnings growth is slowing, the stock price may decline.
Screening parameters
Let’s look at stocks whose EPS growth over the past two quarters has exceeded their growth rate over the previous quarter: Projected EPS growth over the past quarter is also expected to exceed the growth rate over the past quarter.
EPS % Forecast Growth Rate (Q1)/(Q0) is greater than EPS % Growth Rate (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) must be greater than the growth rate for the completed quarter (Q0) over the quarter prior (Q-1).
EPS % Growth (Q0)/(Q-1) is greater than EPS % Growth (Q-1)/(Q-2): The growth rate of the completed quarter (Q0) over the quarter prior (Q-1) must be greater than the growth rate of the quarter prior (Q-1) over the quarter prior (Q-2).
EPS % Growth (Q-1)/(Q-2) is greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) to two quarters ago (Q-2) must be greater than the growth rate from two quarters ago (Q-2) to three quarters ago (Q-3).
In addition, the following parameters have been added:
Current price is over $5: This will filter out low priced stocks.
20-day average trading volume of 50,000 or moreHigh trading volume means that the stock has ample liquidity.
Using the above criteria, we narrowed down the list from about 7,735 stocks to 9. Here are the 3 stocks to watch right now:
RTX Corporation
RTX Corporation (NYSE:RTX) is an aerospace and defense company. RTX’s profit margins have improved due to rising defense orders and increased air traffic.
RTX currently has a Zacks Rank #3 (Hold). RTX’s expected earnings growth rate for the current fiscal year is 6.5%.
Australia
Australia (NYSE:AIR) provides a variety of products and services to the aviation and defense industries. AAR’s parts supply business is booming due to growing demand in the leisure market.
Currently, AAR has a Zacks Rank of 2 (Buy). AAR’s expected earnings growth rate for the current fiscal year is 15.4%.
Intrepid Potash
Intrepid Potash (NYSE:IPI) is the largest potash producer in the U.S. Intrepid Potash also produces and sells a variety of other minerals, including potassium.
Intrepid Potash currently carries a Zacks Rank 2. IPI’s expected earnings growth rate for the current fiscal year is 160%.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or sell the short securities mentioned in this material and may have long and/or short positions in the options mentioned in this material. The affiliated investment advisory firm may own or sell the short securities mentioned in this material and may have long and/or short positions in the options mentioned in this material.
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