Earnings growth captivates almost everyone, right from the top brass to research analysts. This is simply because earnings are a measure of the money a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!

Upbeat earnings results are more often than not followed by an uptick in the share price. Earnings acceleration, however, works even better when it comes to lifting the stock price. Studies have shown that a majority of successful stocks had seen acceleration in earnings before an uptick in the stock price.

Finding Future Outperformers

So, what is earnings acceleration? It helps spot stocks that haven’t caught the attention of investors yet, which once secured will invariably lead to a rally in the share price. This is because earnings acceleration considers both direction and magnitude of growth rates. However, if you pick stocks just on the basis of earnings growth then you are paying for something that has already been reflected in the stock price.

Earnings acceleration is the incremental growth in earnings of a company. In other words, if the rate of a company’s quarter-over-quarter earnings growth increases within a stipulated frame of time, it can be referred to as earnings acceleration.

Increase in the percentage of earnings growth convinces us about the fundamental soundness of the company. A sideways percentage of earnings growth, on the other hand, indicates a period of consolidation or slowdown. If the earnings growth percentage moderates, share prices are more likely to nosedive.

Hence, earnings acceleration should be viewed as a key metric for share price outperformance.

The Winning Strategy

Let’s look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the growth rates of the previous periods. The projected quarter-over-quarter percentage EPS growth rates are also expected to be higher than the previous periods’ growth rates.

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 the low-priced stocks.

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 down the universe of around 7,735 stocks to only 10. Here are the top four stocks that flaunt a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Exelixis, Inc. (EXEL - Free Report) is a biopharmaceutical company which engages in the discovery, development and commercialization of new medicines. The company’s estimated growth rate for this year is 117.8%, way higher than the industry’s gain of 10%. The Zacks Consensus Estimate for its current year earnings increased 2.2% over the last 60 days.

U.S. Silica Holdings, Inc. (SLCA - Free Report) produces and sells commercial silica in the U.S. The company’s estimated growth rate for this year is 263.1%, way higher than the industry’s gain of 21.5%. The Zacks Consensus Estimate for its current year earnings soared 72% over the last 60 days.

Intuit Inc. (INTU - Free Report) provides business and financial management solutions to small businesses, consumers and accounting professionals. The company’s estimated growth rate for this year is 9.3%, more than the industry’s gain of 5%. The Zacks Consensus Estimate for its current year earnings improved 0.3% over the last 60 days.

RPC, Inc. (RES - Free Report) provides a range of oilfield services and equipment to oil and gas companies involved in the exploration, production, and development of oil and gas properties. The company’s estimated growth rate for this year is 128.7%, way higher than the industry’s gain of 5.3%. The Zacks Consensus Estimate for its current year earnings inched up 0.3% over the last 60 days.