Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.
Should You Consider Boot Barn?
The final step today is to look at a stock that meets our ESP qualifications. Boot Barn (BOOT) earns a #3 (Hold) 21 days from its next quarterly earnings release on January 29, 2025, and its Most Accurate Estimate comes in at $2.05 a share.
BOOT has an Earnings ESP figure of +0.43%, which, as explained above, is calculated by taking the percentage difference between the $2.05 Most Accurate Estimate and the Zacks Consensus Estimate of $2.04. Boot Barn is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
BOOT is just one of a large group of Retail and Wholesale stocks with a positive ESP figure. Costco (COST) is another qualifying stock you may want to consider.
Slated to report earnings on March 6, 2025, Costco holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $4.05 a share 57 days from its next quarterly update.
For Costco, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.04 is +0.23%.
Because both stocks hold a positive Earnings ESP, BOOT and COST could potentially post earnings beats in their next reports.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
