With earnings having just begun, this is a good screen to use
both before and after a company reports.
Like any earnings season, we're going to see both positive
surprises and negative surprises.
This screen however focuses on more than just earnings surprises,
but instead goes over the importance of both earnings surprises and
sales surprises, and why as an investor you should care so much
As you know, if a company reports earnings above expectations,
that's a positive surprise, and the price in general should go up.
If the company reports earnings below expectations, that's a
negative surprise, and the price in general should go down.
But a surprise is more than just a snapshot of an extra few dollars
and cents a company made or lost in that one period. Instead, it's
a glimpse into what a company's earnings could be, or should be, in
And when these surprises occur, the market tries to quickly
re-price that stock to reflect these changes.
Not All Surprises Are Created Equal
Some earnings surprises are due to revenue increases, and other
earnings surprises are due to cost cutting measures.
Top line growth (or sales growth) usually produces the biggest
price reaction over cost-cutting, because an increase in sales is
generally thought of as more sustainable. Once you've cut costs,
where's the future growth going to come from? You can only cut
costs so much. You need sales to drive long term growth.
There's also guidance. What the company sees down the road is
If you've got a positive surprise on one hand, but then downward
guidance on the other, that'll usually produce a negative reaction.
Why? Because they've taken away the hope generated from the
surprise by saying the future outlook will likely be weaker than
There's also the idea that some surprises aren't really surprises
-- either because a company has a history of continuously beating
their estimates or the stock has already priced in a 'surprise' by
running up or going down prior to the announcement; therefore, the
'surprise' in that direction really wasn't a surprise at all.
That's where you'll sometimes see an opposite reaction to an
earnings surprise - a "buy the rumor sell the fact" type event.
But while predicting which companies will surprise or not can be
difficult, the benefit of an earnings surprise will typically last
for one to three months after a surprise is reported.
So you can get in after a company reports a surprise, or you can
try and find companies that are more likely to report a surprise,
and get in ahead of time.
The screen I'm running today starts off with:
Last EPS Surprise greater than or equal to 5%
(Stocks posting positive surprises have a tendency of surprising
Last Sales Surprise greater than or equal to 5%
(A positive sales surprise shows top line strength. And once
again, a company that has surprised in the past is more likely to
surprise again in the future.)
Zacks Rank equal to 1
(Only Strong Buys can get thru.)
Price greater than or equal to $5 and Average 20-day
Volume greater than or equal to 100,000
Just these few criteria narrows down the universe from over 8,800
stocks to just over 30.
Here are 5 stocks that meet this criteria:
TASER International Inc.
Bofl Holdings, Inc.
FleetCor Technologies, Inc.
PennyMac Mortgage Investment Trust
All of these companies reported both earnings surprises and sales
surprises their last time out. A great combination. And I expect
more of the same this time around as well.
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Disclosure: Officers, directors and/or employees of Zacks
Investment Research may own or have sold short securities and/or
hold long and/or short positions in options that are mentioned in
this material. An affiliated investment advisory firm may own or
have sold short securities and/or hold long and/or short positions
in options that are mentioned in this material.
Disclosure: Performance information for Zacks' portfolios and
strategies are available at:
ALKERMES INC (ALKS): Free Stock Analysis Report
BOFI HLDG INC (BOFI): Free Stock Analysis
FLEETCOR TECH (FLT): Free Stock Analysis Report
PENNYMAC MORTGE (PMT): Free Stock Analysis
TASER INTL INC (TASR): Free Stock Analysis
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