Studies have shown that a majority of successful stocks had seen an acceleration in earnings before an uptick in the stock price. Earnings acceleration is the incremental growth in a company’s earnings per share (EPS). 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 called earnings acceleration.

By the way, in the case of earnings growth, you pay for something that is already reflected in the stock price. But earnings acceleration 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 the direction and magnitude of growth rates.

An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period of time. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may at times drag prices down.

Screening Parameters

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 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 21. Here are the three stocks that stand out:

Vaalco Energy EGY is an independent energy company principally engaged in the acquisition, exploration, development and production of crude oil and natural gas. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current year is 48.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Oasis Petroleum OAS is an independent explorer engaged in the acquisition and development of oil and natural gas resources. Oasis Petroleum’s asset base primarily focuses on the North Dakota and Montana regions of the Williston Basin, targeting the Bakken and Three Forks formations. Oasis Petroleum has a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 205%.