Can Reddit Inc. (RDDT) Run Higher on Rising Earnings Estimates?

Reddit Inc. (RDDT) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.

Analysts' growing optimism on the earnings prospects of this company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Reddit Inc., strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.49 per share, which is a change of +206.3% from the year-ago reported number.

Over the last 30 days, 10 estimates have moved higher for Reddit Inc. compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 53.55%.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $1.81 per share represents a change of +154.4% from the year-ago number.

There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, 11 estimates have moved up for Reddit Inc. versus no negative revisions. This has pushed the consensus estimate 49.62% higher.

Favorable Zacks Rank

The promising estimate revisions have helped Reddit Inc. earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

While strong estimate revisions for Reddit Inc. have attracted decent investments and pushed the stock 46.1% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research