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Buy These 5 Stocks with Solid Earnings Acceleration

As we are in the thick of the second-quarter earnings season, investors are on the lookout for stocks that are ready to make a significant jump. Generally, better-than-expected earnings growth leads to an upsurge in the share price. But why is this so? This is because earnings serve as the indicator of a company’s profitability. Take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings!

In addition to actual earnings, here is another metric called earnings acceleration, which works even better in lifting the stock price. Studies have shown that the majority of successful stocks had seen acceleration in earnings before their positive price moves. So, what exactly is earnings acceleration?

Recognizing Future Outperformers

Earnings acceleration is basically incrementally growing earnings per share (EPS) of a company. Or, in other words, it is the increase in a company’s quarter-over-quarter earnings growth within a stipulated frame of time.

As earnings acceleration considers both direction and magnitude of growth rates, it helps one to spot stocks that haven’t caught the attention of the investors yet, which once secured will invariably lead to an uptick in the share price. But, if you pick a stock just on the basis of earnings growth then you are paying for something that has already been reflected in the stock price.

Increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period of time. On the other hand, sideways percentage of earnings growth can potentially signal a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times send prices down.

Hence, earnings acceleration should be viewed as a key metric for share price...


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