Why 8x8 (EGHT) Might be Well Poised for a Surge

8x8 (EGHT) 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.

The upward trend in estimate revisions for this telecommunications services company reflects growing optimism of analysts on its earnings prospects, 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. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

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 8x8, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher 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

The company is expected to earn $0.08 per share for the current quarter, which represents a year-over-year change of -27.3%.

Over the last 30 days, the Zacks Consensus Estimate for 8x8 has increased 33.33% because one estimate has moved higher while one has gone lower.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $0.32 per share, representing a year-over-year change of -11.1%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for 8x8. Over the past month, two estimates have moved higher compared to one negative revision, helping the consensus estimate increase 38.1%.

Favorable Zacks Rank

Thanks to promising estimate revisions, 8x8 currently carries a Zacks Rank #2 (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

Investors have been betting on 8x8 because of its solid estimate revisions, as evident from the stock's 6.1% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.

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

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