Earnings Momentum Defintion & Trading Strategies

Earnings Momentum Definition

Earnings momentum occurs when a company continues to show accelerating earnings growth from quarter to quarter.  This is often a long-term sign that a company's future is bright due to the increased demand for their goods and services.

Interpreting Earnings Momentum

Earnings momentum can not be looked at as a snapshot in time.  An investor must take a deeper look into the income statement and balance sheet of the company in order to get a since of the financial health of the corporation.  One of the key inputs that should be accompanied with earnings momentum is a solid earnings multiplier.  If the multiplier continues to rise this is an indication that the earnings for the upcoming months are expected to continue in the same upward fashion.

Methods for Identifying Stocks with Great Earnings Momentum

Below are some basic strategies for identifying stocks with earnings momentum:
  • EPS is a minimum 20% higher than earnings estimates
  • Four straight quarters of EPS growth
  • Industry that the stock is in has a low P/E ratio
  • Earnings multiplier has consistently increased four quarters in a row

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