TIt is common to try to find stocks with lower prices that have a low price-to-earnings (P / E) ratio. The perception is that the lower the P / E, the higher the value of the stock will be. This inference is drawn from the simple logic that a stock’s current price in the market does not justify (is not equivalent to) its higher profits and therefore has room for maneuver.
But have you ever thought that stocks with a rising P / E may also be worth buying? SunOpta STKL, Lazydays Holdings LAZY, Limited quota QTNT, OptiNose OPTN and America auto parts MPAAs are a few of these stocks.
We’ll explain why this oft-overlooked approach can go a long way in selecting solid stocks.
Why is increasing P / E such a valuable tool?
Investors should note that the stock price moves in line with the performance of earnings. If the profits are stronger, the price of a stock will skyrocket. Strong quarterly earnings and earnings expectations bolster earnings expectations, leading to stronger demand for the stock and an upward trend in its price.
So, if the price steadily rises, it means that investors are assured of the fundamental strength of the stock and expect strong positive effects. Suppose an investor wants to buy a stock with a P / E ratio of 30, that means they are willing to shell out $ 30 for just $ 1 in earnings. This is because the investor expects the company’s profits to grow at a faster rate in the future based on strong fundamentals.
Additionally, studies have found that stocks have seen their P / E ratios jump over 100% from their break point in the cycle. So, if you can pick stocks early in their breakout cycle, you can end up making huge gains.
The winning strategy
In order to preselect stocks that show increasing P / E, we have chosen the following as the main selection parameters.
The estimated EPS growth for the current year is greater than or equal to the actual growth of last year
Percentage change in last year’s EPS must be greater than or equal to zero
(Both of these criteria indicate stable earnings or a trend of growth over time.)
Four-week price percentage change greater than 12-week price percentage change
12-week price percentage change greater than 24-week price percentage change
(These two criteria show that the stock price increases steadily during these periods.)
Four-week percentage price change relative to the S&P 500 greater than 12-week percentage price change relative to the S&P 500
12-week percentage price change from the S&P 500 greater than the 24-week percentage price change from the S&P 500
(Here, the arguments for constant price gains get even stronger as they point to percentage price changes from the S&P 500.)
The 12 week price change percentage is 20% greater than or equal to the 24 week price change percentage, but it must not exceed 100%
(A 20% increase in a share’s price from the breakout point gives hints of an impending uptrend. But a surge of more than 100% indicates that there is limited room for improvement and that the action may need to undergo a reversal.)
In addition, we place a few other criteria that lead us to probable outperformances.
Rank of Zacks less than or equal to 2: Only companies with a Zacks # 1 (strong buy) rating and a Zacks # 2 (buy) rating can pass.
Average volume over 20 days greater than or equal to 50,000: A high trading volume implies that stocks have adequate liquidity.
These few criteria reduced the universe from over 7,700 stocks to just 37.
Here are five of the 37 actions:
SunOpta STKL: Zacks Rank # 1 SupOpt is an operator of high growth ethical companies, focusing on integrated business models in the natural and organic food, supplement and health and beauty markets. You can see The full list of today’s Zacks # 1 Rank stocks here.
STKL has three business units: the SunOpta Food Group, specializing in the sourcing, processing and distribution of natural and organic food products integrated from seed to packaged products; the Opta Minerals Group, producer, distributor and recycler of environmentally friendly industrial materials; and the SunOpta BioProcess group, which designs and markets proprietary steam explosion technology systems for the pulp, biofuels and food processing industries.
Lazydays Holdings Zacks Rank # 2 Lazydays Holdings is an iconic brand in the motorhome industry. Lazydays offers brands of RVs, new and used RVs, service areas and campgrounds on site.
LAZY also has rental fleets in Florida, Arizona and Colorado. Additionally, Lazydays RV Accessories & More stores carry hard-to-find accessories and parts. Lazydays Holdings, Inc., formerly known as Andina Acquisition Corp. II, is based in New York.
QTNT Limited Quotient: Quotient Limited is a commercial-stage transfusion diagnostics company. She has a Zacks Rank # 2.
QTNT is focused on the supply of consumables for blood typing and the development of MosaiQ, a fully automated platform for use in donor centers and patient screening sites.
OptiNose OPTN: OptiNose is a specialty pharmaceutical company. He wears a Zacks Rank # 2.
OPTN is focused on the development and commercialization of products for patients treated by ear, nose and throat specialists or ENT and allergy specialists.
Auto parts from America MPAA: Motorcar Parts of America, Inc. is an automotive aftermarket remanufacturer, manufacturer and distributor. The MPAA has a Zacks Rank # 2.
In addition, MPAA designs and manufactures test equipment for performance, endurance and production testing of alternators, starters, electric motors, inverters and belt-start generators for equipment. origin and secondary market.
You can get the rest of the stocks on this list by signing up now for your 2 week free trial of the Research Assistant and start using this screen in your own trading. In addition, you can also create your own strategies and test them out before you get into investing.
The Research Assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.
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Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.
Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance.
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SunOpta, Inc. (STKL): Free Inventory Analysis Report
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