Wall Street watches a company’s quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
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.
Now that we know how important earnings and earnings surprises are, it’s time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% 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 ASML?
The final step today is to look at a stock that meets our ESP qualifications.
ASML (ASML)
earns a #3 (Hold) 30 days from its next quarterly earnings release on January 18, 2023, and its Most Accurate Estimate comes in at $4.43 a share.
ASML’s Earnings ESP sits at +0.76%, which, as explained above, is calculated by taking the percentage difference between the $4.43 Most Accurate Estimate and the Zacks Consensus Estimate of $4.40. ASML is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our
Earnings ESP Filter
to uncover the best stocks to buy or sell before they’ve reported.
ASML is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at
Etsy (ETSY)
as well.
Slated to report earnings on February 23, 2023, Etsy holds a #3 (Hold) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $0.90 a share 66 days from its next quarterly update.
Etsy’s Earnings ESP figure currently stands at +1.5% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.89.
ASML and ETSY’s positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 >>
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