Consistent earnings growth captures the attention of top executives and analysts because it reflects a company’s profitability. However, earnings acceleration is even more effective in boosting stock price. Studies indicate that the most successful stocks have experienced an acceleration in earnings before an increase in stock price.

To that end, The Kroger Co. KR, Lam Research Corporation LRCX and Limbach Holdings, Inc. LMB are exhibiting strong earnings acceleration.

What is Earnings Acceleration?

Earnings acceleration is the incremental growth in a company’s earnings per share (EPS). In other words, if a company’s quarter-over-quarter earnings growth rate increases within a stipulated time frame, it can be called earnings acceleration.

In the case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps spot stocks that haven’t yet caught the attention of investors and, once secured, will invariably lead to a rally in the share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.

An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may drag prices down.

Screening Parameters Using Research Wizard:

Look at stocks for which the last two quarter-over-quarter percentage earnings per share (EPS) growth rates exceed the previous periods’ growth rates. The projected EPS growth rates for the upcoming quarter are expected to exceed those of the prior periods.

EPS % Projected Growth (Q1)/(Q0) greater than EPS % Growth (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) has to be greater than the growth rate from the completed quarter (Q0) over one quarter ago (Q-1).

EPS % Growth (Q0)/(Q-1) greater than EPS % Growth (Q-1)/(Q-2): The growth rate for the completed quarter (Q0) over one quarter ago (Q-1) has to be greater than the growth rate from one quarter ago (Q-1) over two quarters ago (Q-2).

EPS % Growth (Q-1)/(Q-2) greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) over two quarters ago (Q-2) has to be greater than the growth rate from two quarters ago (Q-2) over three quarters ago (Q-3).

In addition to this, we have added the following parameters:

Current Price greater than or equal to $5: This screens out low-priced stocks.

Story Continues

Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.

The above criteria narrowed the universe of around 7,735 stocks to only five. Here are the top three stocks:

Kroger

Kroger operates as a food and drug retailer in the United States. Kroger currently has a Zacks Rank #2 (Buy). Kroger’s expected earnings growth rate for the current year is 6%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Lam Research

Lam Research designs, manufactures and services semiconductor processing equipment for integrated circuit fabrication. Lam Research currently has a Zacks Rank #2 and an expected earnings growth rate of 32.8% for the current year.

Limbach Holdings

Limbach Holdings operates as a building systems solution company in the United States. Limbach Holdings currently has a Zacks Rank #1. Its expected earnings growth rate for the next five years is 12%.

You can sign up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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: https://www.zacks.com/performance.

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Lam Research Corporation (LRCX):Free Stock Analysis Report

The Kroger Co. (KR):Free Stock Analysis Report

Limbach Holdings, Inc. (LMB):Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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