3 Stocks With Accelerating Earnings Poised to Soar in October
Investors often view consistent earnings growth as a sign of a company’s solid profitability. However, an even more compelling indicator is earnings acceleration, which can drive stock price gains. Historical market research has found that many top-performing stocks exhibit earnings acceleration before their share prices began moving higher.
To that end, Western Digital Corporation WDC, PACCAR Inc PCAR and Sprout Social, Inc. SPT are showing strong earnings acceleration and strong upside potential, making them compelling buys in October. Each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Acceleration: What Investors Should Know
Earnings acceleration refers to the incremental growth in a company’s earnings per share (EPS). Put simply, if a company’s quarter-over-quarter earnings growth rate increases over a given period, 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 identify stocks that haven’t yet caught investors’ attention and, once secured, will invariably lead to a rally in 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.
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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 rate for the upcoming quarter is expected to exceed that 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 16. Here are the top three stocks:
Western Digital
Western Digital develops and sells HDD-based data storage devices and solutions across global markets. WDC’s expected earnings growth rate for the current year is 96%.
PACCAR
PACCAR designs, manufactures, and sells light-, medium-, and heavy-duty commercial trucks worldwide. PACCAR’s expected earnings growth rate for the current year is 18%.
Sprout Social
Sprout Social provides a web-based social media management platform worldwide. SPT’s expected earnings growth rate for the current year is 37.8%.
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Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
Of course, all our elite picks aren't winners, but this one could far surpass earlier Zacks' Stocks Set to Double like D-Wave Quantum, which shot up +680.1%.
Free: See Our Top Stock And 4 Runners UpWestern Digital Corporation (WDC) : Free Stock Analysis Report
PACCAR Inc. (PCAR) : Free Stock Analysis Report
Sprout Social, Inc. (SPT) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
