Two great examples of this are Microsoft (Nasdaq:MSFT) and Google (Nasdaq:GOOG). Microsoft's early earnings surprises were one of the key indicators to buy the stock and experience massive gains. Similarly, Google put together a string of earnings surprises following its IPO in 2004. Buying in then would have brought big gains in the years that followed.
Take a look at the five stocks below. Each has produced a positive earnings surprise in its most recent quarter, and could be a solid candidate for follow-up research. The key is to determine if more positive earnings surprises, and therefore, share price increases, are in store for upcoming quarters. (Consensus estimates can send stocks spiraling - but do they represent reality? To learn more, read Surprising Earnings Results .)
With that in mind, here are five stocks that have produced positive earnings surprises in their most recently reported quarter:
|
Company
|
Most Recent EPS Surprise*
|
Market Cap
|
|
Amazon
(Nasdaq:AMZN)
|
42%
|
$34.1B
|
|
Darling International
(NYSE:DAR)
|
22%
|
$1.10B
|
|
Isle of Capri
(Nasdaq:ISLE)
|
45%
|
$215M
|
|
Sally Beauty
(NYSE:SBH)
|
30%
|
$1.50B
|
|
Toll Brothers
(NYSE:TOL)
|
31%
|
$3.71B
|
|
*Data from most recent quarter reported.
|
Sally Beauty Sees Strong Q3
The Texas-based specialty retailer of beauty supplies is coming off a solid third quarter. The company reported earnings of $29.4 million, or 16 cents per share. That is a big jump up from the $13.4 million, or 7 cents per share, it turned in during the same period last year. The Street had been looking for just 10 cents per share. Adjusted Q3 earnings came in at 13 cents per share which is 30% above the estimate.
Another important point was that the company posted a same-store-sales increase of 3.4%. In this economic environment, that's impressive.
Data provided by Yahoo Finance also indicates that pair of insiders have been buying, which always piques my interest. John Miller, a director bought 20,000 shares in mid May, and Marshall Eisenberg another director bought shares at around that same time.
Currently the company is expected to earn 46 cents per share in the current year and 61 cents per share next year. That implies an expected growth rate north of 30%. For a stock that currently trades at $8.50 per share, or about 18.5 price to earnings for the current year estimate and about 14 times next year's estimate, that is attractive.
Bottom Line
This is retail, so anything can happen, and what seems to be working today might not tomorrow. Stocks that report robust earnings growth can still see big declines in price if the actual earnings per share reported miss estimates by even a penny. Likewise, a penny in the other direction can be a huge boost to a company's stock price. Investors should always be on the lookout for companies that manipulate earnings in order to report those extra few pennies.
In other words, positive earnings surprises can serve as a good starting point to create a shortlist of companies for follow up research, but by themselves, these surprises shouldn't serve as buy indicators. The key is to perform your own due diligence on the stock to determine if you think it is likely to produce more positive earnings surprises going forward.
To get started, check out Due Diligence In 10 Easy Steps and Common Clues Of Financial Statement Manipulation.
