When all is said and done,
over time, stock prices track earnings per share more than any other
Thus, all else equal, your
best stocks will be those that grow their per-share earnings the
most while you hold them.
How do you find these fast
growers? Stock analyst earnings forecasts. Sure, analysts get it
wrong more than we’d like, but their day job is forecasting earnings
and all things considered, they’re your best resource.
Screen for Fast Growers
So, today, I’m going to
describe how to use the finviz stock screener to pinpoint stocks
that analysts think have the best earnings growth prospects. Then,
we’ll check some sentiment factors to confirm that the overall
market agrees with them. If you’re not familiar with the term, stock
screeners are programs available on certain stock market websites
that allow you to scan the entire market for stocks meeting your
I often rely on the finviz
screener in this column because it’s free, user-friendly, and offers
a lot of screening parameters, which it calls “filters.” So, here
From the finviz homepage
(finviz.com), select “screener” and then “all” on the screen filters
bar to see the available filters. For each filter that you want to
use, use the adjacent dropdown menu to select the filter value.
Define Target Universe
Since the U.S. stock market is
arguably the hottest these days, start by selecting “USA” on the
Country filter. Then, because smaller stocks are inherently risky
bets, use the Market-Cap (value of all outstanding shares) filter to
limit the field to mid-cap (over $2 billion) stocks.
Isolate Fast Growers
Most stocks don’t grow
earnings much more than 5% to 10% annually. So, next, we’ll isolate
the fast growers, stocks that analysts expect to grow earnings at
least 15% annually. Use the “EPS Growth This Year,” “EPS Growth Next
Year,” and “EPS Growth Next Five Years” filters and specify “Over
15%” for each.
Next, verify that recent
earnings growth, at least, came from higher sales, not cost cutting.
Do that by specifying “greater than 10%’ for “Sales Growth quarter
over quarter.” Along those same lines, verify that passing firms are
indeed profitable by specifying “positive” for Return on Equity
which can only be a positive number it the past 12-month’s earnings
Check Market Sentiment
Specify “Over 40%” for
Institutional Ownership, and “postive” for Institutional
Transactions, to assure that mutual funds and other wired-in players
not only hold significant positions, but are still adding to their
Finally, assure that the
overall market agrees with analysts and institutional investors by
verifying that passing stocks are generally heading up in price, not
down. Do that by requiring “price above simple moving average (SMA)”
for both the 50-Day and 200-Day Simple Moving Average filters.
Four Hot Prospects
My screen turned up four hot
growth prospects. Click (http://bit.ly/HotGrowth) to see what it
turns up today.
Mobile communications software
maker Digital Turbine (ticker APPS), Commercial Real Estate data
supplier CoStar Group (CSGP), mattress and bed linens manufacturer
Purple Innovation (PRPL), and small business payment processor
As always, consider the results of this screen to be
research candidates, not a buy list. Also, it will take some time
for these players’ growth prospects to play out. Consider holding
them six months to a year, and maybe even longer. That said, sell on
any major setbacks to their growth story.