Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.
Should You Consider Datadog?
The final step today is to look at a stock that meets our ESP qualifications. Datadog (DDOG) earns a #2 (Buy) six days from its next quarterly earnings release on August 7, 2025, and its Most Accurate Estimate comes in at $0.42 a share.
DDOG has an Earnings ESP figure of +2.83%, which, as explained above, is calculated by taking the percentage difference between the $0.42 Most Accurate Estimate and the Zacks Consensus Estimate of $0.41. Datadog is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
DDOG is just one of a large group of Computer and Technology stocks with a positive ESP figure. HP (HPQ) is another qualifying stock you may want to consider.
Slated to report earnings on August 27, 2025, HP holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.76 a share 26 days from its next quarterly update.
For HP, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.74 is +2.24%.
DDOG and HPQ's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
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Datadog, Inc. (DDOG): Free Stock Analysis Report HP Inc. (HPQ): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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