What if a company reports a spectacular quarter of earnings but it turns out to be a one-off performance?
Sure, each quarter's earnings matter a lot to the stock market. But you also want to see a strong trend, with stocks that consistently show great profit gains, quarter after quarter. Those steady and strong quarterly gains add up to strong annual earnings.
IBD's research into the most successful stocks has found that they usually have annual earnings growth of at least 25% before they make their major advances. Top performers vault over that hurdle with ease.
Often, these stellar companies also post three straight years of 25%-plus profit growth. Sustainable and powerful earnings growth shows the company is a leader in its industry.
So, how do you find those earnings powerhouses?
The Earnings Per Share Rating, or EPS Rating, uses earnings over the two most recent quarters. It also uses earnings over the past three-to-five years and then assigns a score from 1-to-99 to each of the stocks in the Investor's Business Daily database.
IBD research shows that the best growth stocks have an EPS Rating of 80 or higher.
The EPS Rating can be found in stock quotes at Investors.com and the IBD Stock Checkup. It is in IBD's premium products, including IBD MarketSurge, and in many other resources.
It is also possible to find the stocks with the best annual earnings growth using MarketSurge's powerful screening tool.
Stock Market: Annual EPS Leaders In IBD 50
AI stock Palantir stands out in the IBD 50 for its superb annual EPS growth, which jumped 317% in a single year. Earnings grew over 80% and 43% in the two most recent quarters, reflecting long-term profit success.
Palantir stock has gained 258% year to date as of Thursday's closing price.
Nvidia is actually second among IBD 50 companies with annual growth of 294% in earnings per share. Nvidia's RS Rating is also an impressive 97. Nvidia stock has gained 196% year to date.
Another way of tracking earnings growth is to look at the earnings line which is in MarketSurge weekly charts. It is rising sharply for both Palantir and Nvidia.
Other top IBD 50 stocks in terms of annual EPS growth are data center and AI plays Vertiv and Powell Industries, travel booking service MakeMyTrip and payments firm Shift4 Payments.
Other Points To Note
Great annual earnings growth may not always be enough to produce strong stock gains.
Also, some companies that don't have strong earnings growth rally because of outstanding sales growth as investors anticipate high profit growth ahead.
New issues sometimes show strong price action even when earnings growth is not strong.
Vistra started trading on the New York Stock Exchange in 2016 and is one of the top stocks on watch as energy demand for the artificial-intelligence boom continues to rise.
Vistra, which was last Monday's IBD Stock Of The Day, has an EPS Rating of just 48. That's because the company posted losses in 2021 and 2022. But its Relative Strength Rating is an ideal 99. The stock has climbed more than 50% from a Sept. 20 breakout.
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