Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete 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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Impinj?
The final step today is to look at a stock that meets our ESP qualifications. Impinj (PI) earns a #1 (Strong Buy) 14 days from its next quarterly earnings release on February 5, 2025, and its Most Accurate Estimate comes in at $0.48 a share.
PI has an Earnings ESP figure of +1.41%, which, as explained above, is calculated by taking the percentage difference between the $0.48 Most Accurate Estimate and the Zacks Consensus Estimate of $0.47. Impinj 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.
PI is just one of a large group of Computer and Technology stocks with a positive ESP figure. Lyft (LYFT) is another qualifying stock you may want to consider.
Slated to report earnings on February 11, 2025, Lyft holds a #2 (Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.24 a share 20 days from its next quarterly update.
The Zacks Consensus Estimate for Lyft is $0.23, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +5.66%.
PI and LYFT's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
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 >>
Zacks' Research Chief Names "Stock Most Likely to Double"
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Free: See Our Top Stock And 4 Runners UpImpinj, Inc. (PI) : Free Stock Analysis Report
Lyft, Inc. (LYFT) : 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.
