Green Mountain Coffee (GMCR) - Anatomy of Success
They say 'luck' is simply about being prepared for an opportunity.
In the stock market, when a positive earnings surprise sends a stock exploding higher, those that were properly positioned are often called lucky for being in.
To a degree, they are right. How much a stock moves after such an event depends on a lot of things.
But purposefully being in a stock with a high probability of positively surprising is a lot more science that luck. And much of it comes down to their ability to surprise in the past along with their earnings estimate revisions.
Green Mountain Coffee Roasters ( GMCR )
Those in Green Mountain Coffee, a specialty coffee maker, were setting themselves up to get very 'lucky'.
On November 30th, 2012, GMCR was upgraded to a Zacks Rank #1 (Strong Buy), which forecast that they would outperform the market over the next 1-3 months. At that time, they were trading at $36.67 with their projected 12 Month Earnings Estimates at $2.73.
Investors who got in on that Strong Buy signal saw the price of GMCR start to climb immediately. And week by week, their earnings estimate revisions steadily climbed as well. Each increase in earnings estimates provided more and more reason for the stock to continue its uptrend.
On Feb. 6th, 2013, GMCR posted a positive surprise of 15.38%. Prices didn't immediately explode higher after that beat, but with estimates continuing to go up, prices quickly followed suit, gaining another 28% between then and their next earnings report.
Leading up to that report, investors were quite confident that even better things were in store for GMCR. With earnings estimates still on the rise, and knowing that companies that positively surprise have a greater tendency to surprise again, it's no wonder investors were excited.
On May 8th, that excitement was well founded as they posted another positive surprise, this time 27.40%, and prices skyrocketed 27.84% in one day. All in all, between 11/30/12, when they first earned their Zacks #1 Rank, and the close of business on 5/17/13 (6 ½ months later and still a Zacks Rank #1), GMCR increased by 117.10%. Wow!
Stocks receiving upward earnings estimate revisions typically receive even more upward earnings estimate revisions. And stocks receiving upward earnings estimate revisions have a higher probability of positively surprising. This virtuous cycle continues as stocks that positively surprise have a tendency of positively surprising again.
Very few things can send a price skyrocketing like a positive EPS surprise. But you don't have to wait to get lucky on one of these stocks. You can create your own luck by keying in on stocks with a Zacks Rank #1, upward earnings estimate revisions, and a recent history of positive EPS surprises.
Disclosure: Performance information for Zacks portfolios and strategies are available at: http://www.zacks.com/performance .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.