In the post what’s the next super trend? The Fly poses an interesting question.
The discussion recognized past winners such as CMG, AAPL, MNST, BWLD, then asked “what’s next”.
Stocks that make big moves typically have HUGE earnings surprises.
Stockbee has posted a lot of research about earnings surprises and post earnings drift.
The criteria for great performers are earnings surprises and earnings acceleration.
In this screen we will combine both.
Last EPS Surprise (%) >100%
We will need to compare last year’s growth to the historic 5 year EPS growth. The last year’s growth should be greater than the historic EPS growth since companies with earnings acceleration break away from their 5 year averages.
Last Yrs Growth > 0
Previous year’s growth >-999999
5 Yr. Hist. EPS Growth >-999999 (we will use this simply as a reference point to run formula in excel after we export the list)
We get 56 names, many of which will have to be screened down farther.
Many of these are hard to compare because the 5 year average was negative. Those can be fantastic investments if they become a great turn around story like Apple was when it almost went bankrupt… However it is difficult to compare these and rank them. If a company was negative 50% EPS and now it’s 10% is it better than one that was previously negative 10% and now is 50%? Do you look at the overall number or some ratio?
So for now we will only look at companies with a history of a positive 5 year earnings growth. We divide last year’s EPS growth by the previous year. If earnings are accelerating this should be positive, particularly with a recent positive earnings surprise. If it’s not we will filter these out. Over half the names with positive earnings history get filtered out. Only one name after this has the previous year’s earnings less than the 5 year average which could indicate volatile earnings that may not be sustainable.
We can multiply the ratio of last year’s earnings over the 5 year history, previous year’s earnings over 5 years, and last year over previous and the earnings surprise since we want these all to be high numbers and sort by the highest. If we would like, we can weight each number by some degree of “importance” if perhaps you consider an “earnings surprise” more significant than earnings acceleration. But after doing that, I am left with the following names in this order.
STATOIL ASA-ADR STO
GSE SYSTEMS INC GVP
MERGE HEALTHCAR MRGE
UNITED CAPITAL UCAP
BROOKS AUTOMATN BRKS
COSTAR GRP INC CSGP
PROASSURANCE CP PRA
Now let’s go back to the 5 year history of negative earnings surprises. We will add the absolute value to last year’s growth and add these two together and compare it to the absolute value of the 5 year earnings. For example, if last year’s growth was 200% and the 5 year average was negative 50% we would take 250 divided by 50 to get 5. At least this way we are getting somewhat of a relative comparison although it might be skewing those a bit that are close to zero. We do the same with the previous year’s growth to the 5 year history.
More importantly, we screen out those that have a lower growth rate this year than last.
Now we take last EPS surprise multiplies by the ratios we ran multiplied by the 5 year growth history (to attempt to unskew those with a 5 year growth rate closer to zero) and we sort them. Well this gives us the following
AMERISERV FINL ASRV
HONDA MOTOR HMC
CYBEX INTL INC CYBI
HERITAGE FIN GP HBOS
MITCHAM INDS MIND
PINNACLE ENTRTN PNK
CDI CORP CDI
AMER CAP LTD ACAS
VASCO DATA SEC VDSI
H&E EQUIP SVCS HEES
HOMEOWNERS CHCE HCII
SPROTT RESOURCE SILU
Here are the charts
For the sake of being thorough these are the ones we screened out with a positive 5 year history
CHURCHILL DOWNS CHDN
ASPEN TECH INC AZPN
STAMPS.COM INC STMP
TOWER FINANCIAL TOFC
AMERIGON INC ARGN
CORINTHIAN COL COCO
THOMPSON CREEK TC
CASS INFO SYS CASS
SHARPS COMPLIAN SMED
EVOLVING SYSTEM EVOL
NOVA MEASURING NVMI
SUPERIOR INDS SUP
(and those with a negative 5 year history)
WHITE MTN INS WTM
ENCORE WIRE CP WIRE
WILLDAN GROUP WLDN
DYCOM INDS DY
METROCORP BANCS MCBI
ADAMS RES&ENRGY AE
TRICO BANCSHRS TCBK
FREIGHTCAR AMER RAIL
ACETO CORP ACET
POWERSECURE INT POWR
EASTERN VA BKSH EVBS
MARCHEX INC MCHX
TUCOWS INC TCX
TIMBERLAND BANC TSBK
RELM WIRELESS RWC
FISHER COMM INC FSCI
CAPLEASE INC LSE
INTEGR DEVICE IDTI
MARINE PRODUCTS MPX
PDF SOLUTIONS PDFS
METALICO INC MEA
the charts of these we screened out.