Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Roblox?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Roblox (RBLX) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at -$0.34 a share 28 days away from its upcoming earnings release on July 31, 2025.
RBLX has an Earnings ESP figure of +4.95%, which, as explained above, is calculated by taking the percentage difference between the -$0.34 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.36. Roblox 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.
RBLX is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. MGM Resorts (MGM) is another qualifying stock you may want to consider.
Slated to report earnings on July 30, 2025, MGM Resorts holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.64 a share 27 days from its next quarterly update.
The Zacks Consensus Estimate for MGM Resorts is $0.57, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +11.1%.
Because both stocks hold a positive Earnings ESP, RBLX and MGM could potentially post earnings beats in their next reports.
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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Roblox Corporation (RBLX): Free Stock Analysis Report MGM Resorts International (MGM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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