How Investors Can Grab Better Returns for Computer and Technology Using the Zacks ESP Screener

Earnings are arguably the most important single number on a company’s quarterly financial report. Wall Street clearly dives into all of the other metrics and management’s input, but the EPS figure helps cut through all the noise.

We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.

Hunting for ‘earnings whispers’ or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn’t make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.

The Zacks Earnings ESP, Explained

The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company’s report. The idea is relatively intuitive as a newer projection might be based on more complete information.

Now that we understand the basic idea, let’s look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} of the time. Plus, this system saw investors produce roughly 28{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} annual returns on average, according to our 10 year backtest.

Stocks with a #3 (Hold) ranking, which is most stocks covered at 60{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} and top 5{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.

Should You Consider Wix.com?

The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Wix.com (WIX) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at -$0.25 a share two days away from its upcoming earnings release on May 12, 2021.

By taking the percentage difference between the -$0.25 Most Accurate Estimate and the -$0.73 Zacks Consensus Estimate, Wix.com has an Earnings ESP of 65.58{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}. Investors should also know that WIX is just one of a large group of stocks with positive ESPs. All of these qualifying stocks can be filtered by ESP, Zacks Rank, {cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} Surprise (Last Qtr.), and Reporting date.

Don’t forget to head to the Earnings ESP Home Page. There, you’ll find lots more earnings-related investing strategies to help build a winning portfolio.

Find Stocks to Buy or Sell Before They’re Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they’re reported for profitable earnings season trading. Check it out here >>

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