(Written by Alexander Crawford. EPS data sourced from Yahoo! Finance.)
Looking for underestimated stocks but don’t know where to start? Here are a few ideas you may find interesting.
Quarterly earnings reports are big movers for most stock prices. When a company fails to meet the market’s expectations, its stock will usually drop to discount in the new information. If earnings exceed expectations, a higher stock price will usually be the reward.
If you believe that company characteristics can cause EPS surprises to persist across time, or if you believe underestimation can persist across time, one idea is to look at companies who have surprised analysts in the past.
We ran a screen on companies that have beaten analyst estimates for quarterly EPS over the last four quarters. We screened these stocks for those that are also technically oversold, with a Relative Strength Index (RSI) reading below 40. This means that according to price and volume data, the stock may be ready for a rebound.
Do you think these companies should be trading higher? If so, do you think another earnings surprise will do the trick?
Analyze These Ideas (Tools Will Open In A New Window)
1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned
List sorted by average earnings surprise.
1. Star Bulk Carriers Corp. (SBLK): Operates as a shipping company providing seaborne transportation solutions in the dry bulk sector worldwide. RSI(14) indicator at 25.23. In Dec 2010: Reported EPS at 0.38 vs. estimate at 0.02 (surprise of 1800%). In Mar 2011: Reported EPS at 0 vs. estimate at -0.02 (surprise of 100%). In Jun 2011: Reported EPS at -0.05 vs. estimate at -0.07 (surprise of 28.6%). In Sep 2011: Reported -0.04 vs. estimate at -0.08 (surprise of 50%). [Average earnings surprise at 494.65%].
2. PAR Technology Corp. (PAR): Provides professional services and enterprise business management technology to the hospitality industry worldwide. RSI(14) indicator at 29.12. In Dec 2010: Reported EPS at 0.08 vs. estimate at 0.04 (surprise of 100%). In Mar 2011: Reported EPS at 0.03 vs. estimate at 0 (surprise of N/A). In Jun 2011: Reported EPS at 0.07 vs. estimate at 0.01 (surprise of 600%). In Sep 2011: Reported 0.08 vs. estimate at 0.07 (surprise of 14.3%). [Average earnings surprise at 238.1%].
3. Rocky Brands, Inc. (RCKY): Designs, manufactures, and markets footwear and apparel under the Rocky, Georgia Boot, Durango, Lehigh, Mossy Oak, and Michelin brand names. RSI(14) indicator at 28.74. In Dec 2010: Reported EPS at 0.41 vs. estimate at 0.2 (surprise of 105%). In Mar 2011: Reported EPS at 0.07 vs. estimate at -0.06 (surprise of 216.7%). In Jun 2011: Reported EPS at 0.3 vs. estimate at 0.2 (surprise of 50%). In Sep 2011: Reported 0.7 vs. estimate at 0.69 (surprise of 1.4%). [Average earnings surprise at 93.27%].
4. Vera Bradley Designs, Inc. (VRA): Engages in the design, production, marketing, and retail of functional accessories for women under the Vera Bradley brand. RSI(14) indicator at 29.93. In Jan 2011: Reported EPS at 0.39 vs. estimate at 0.27 (surprise of 44.4%). In Apr 2011: Reported EPS at 0.28 vs. estimate at 0.27 (surprise of 3.7%). In Jul 2011: Reported EPS at 0.34 vs. estimate at 0.29 (surprise of 17.2%). In Oct 2011: Reported 0.32 vs. estimate at 0.28 (surprise of 14.3%). [Average earnings surprise at 19.9%].
5. WNS (Holdings) Ltd. (WNS): Provides offshore business process outsourcing (BPO) services. RSI(14) indicator at 12.88. In Dec 2010: Reported EPS at 0.33 vs. estimate at 0.3 (surprise of 10%). In Mar 2011: Reported EPS at 0.32 vs. estimate at 0.31 (surprise of 3.2%). In Jun 2011: Reported EPS at 0.22 vs. estimate at 0.2 (surprise of 10%). In Sep 2011: Reported 0.26 vs. estimate at 0.24 (surprise of 8.3%). [Average earnings surprise at 7.88%].