In momentum factor series I am covering today earnings momentum:
It involves selecting stocks that have demonstrated positive earnings surprises or upward earnings revisions. The idea is that companies with better-than-expected earnings or increasing earnings forecasts are likely to continue performing well in the future, as they may indicate strong business performance and investor confidence.
For example, suppose a company’s quarterly earnings were expected to be ₹10 per share, but the actual earnings came in at ₹12 per share. This positive earnings surprise might attract more investors, driving the stock price higher. Similarly, if analysts revise their earnings forecasts upward for a company, it suggests optimism about the company’s future prospects, potentially leading to increased demand for its stock.
A practical implementation of this strategy could be:
- Identify companies that have recently reported earnings higher than analyst expectations.
- Look for companies where analysts have revised their earnings estimates upward.
- Invest in these companies, anticipating that the positive momentum in earnings will translate into higher stock prices.
For instance, if Company A was expected to earn ₹15 per share in the upcoming quarter but is now projected to earn ₹18 per share due to strong business performance, an investor following an earnings momentum strategy might buy shares of Company A, expecting that the stock price will rise as more investors become aware of the improved earnings outlook.
| Subscribe To Our Free Newsletter |
