Institutional investors screen for stocks with earnings growth in the double digits or higher, and Enphase NASDAQ: ENPH, Select Medical Holdings NYSE: SEM, Floor & Decor NYSE: FND meet that yardstick.
Forward earnings give you an estimate of how much the company will earn in the upcoming quarters or years. Analysts who follow companies use a number of inputs to model their earnings forecasts.
It’s an inexact science, because the environment can change quickly, due to unforeseen circumstances. The Covid lockdowns shattered expectations throughout many industries, and lifted others.
Nonetheless, tracking analysts’ estimates for earnings over the next quarters and years can give you an indication of which stocks may have potential.
Enphase Energy is a California-based company specializing in solar power, as well as energy storage and monitoring.
Analysts see earnings growth of 48% this year, to $2.03 per share. For 2022, Wall Street pegged earnings growth at 34%, to $2.72 per share.
The stock fell 16.60% last week, on the heels of its first-quarter earnings report. Although both earnings and sales grew at a year-over-year rate of 47%, investors were ready to take some profits following a one-year gain of 197.35%.
Shares closed Friday at $139.25, down $4.15, or 2.89%.
A big concern for investors has been demand that outstrips supply. In the quarterly earnings call on April 28, CEO Badri Kothandaraman said the company is lining up new suppliers, but it’s been slow going. He expects supply-chain restraints to affect the company for the remainder of this year.
Ultimately, that will get worked out. It’s not at all surprising to see a company pull back after a triple-digit price gain, as investors take some profits while the stock is at high valuations. Over the long term, the company’s business model appears sound, and the pullback could offer an opportunity to scoop up shares at a lower price.
Select Medical Holdings cleared a consolidation on April 22, overcoming resistance at $37.42. The stock finished lower in that session, but confirmed the breakout the next day.
Shares ended April at $37.72, a monthly gain of 10.62%.
The company operates 99 acute-care hospitals and 30 in-patient rehabilitation facilities. It’s due to report earnings on Thursday, May 6, with analysts eyeing earnings per share of $0.65 on revenue of $1.44 billion.
Analysts see earnings growing 17% this year, to $2.30 per share, and 20% next year, to $2.76 a share. Both would be year-over-year gains.
The company topped earnings estimates in each of the past six quarters, so it’s not unreasonable to expect the same this time around.
However, the stock is extended, following a one-year return of 120.97%. As with Enphase, the stock may be ripe for a selloff after that kind of run-up. In fact, the stock is up 36.37% so far this year, with January being the only month in 2021 with a negative return. Nonetheless, with those high earnings estimates, the company is worth watching.
Specialty flooring retailer Floor & Decor cleared a base on April 9, passing a structure high buy point at $108.54 in nearly triple average volume.
Shares closed Friday at $110.92, down $3.08, or 2.70%.
The Georgia-based company reports its first-quarter on Thursday after the close. Analysts forecast per-share earnings of $0.53 on revenue of $745.34 million, which would mark gains from the year-ago quarter.
Wall Street is expecting 2021 earnings per share of $1.95, a gain of 30%. Next year, analysts expect earnings to come in at $2.46 per share, a gain of 26%.
Floor & Decor has a long history of beating Wall Street estimates, so investors may want to watch for a surprise in the upcoming report.
This company is smack dab in the middle of the ongoing home building and remodeling boom. Earnings and revenue grew at double-digit rates in seven of the past eight quarters, the only exception being the second quarter of 2020, when many Covid restrictions were at their peak.
Even in that quarter, the company was profitable, but it saw declines on the top- and bottom lines.
This is another growth stock that is getting a bit frothy, and has a high price-to-earnings ratio, which is 76 in this case. After a run-up of 161.60% over the past year, it may be time for a pullback before the next buy opportunity.
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