When companies report earnings significantly higher than analyst's earnings estimates the result is known as an 'earning's suprise'. While earnings surprises often create spikes in the share price on the day of the announcement, they have also been observed to trigger longer term increases in the share price. This effect is known as the "Post Earnings Announcement Drift" and can last for several weeks or even months after the announcement date. The effect is generally attributed to the fact that analysts are slow to revise their forecasts and the market does not fully react to the information about future growth conveyed by the earnings surprises. The idea behind the strategy is to buy stocks that report earnings surprises and hold them over this time period. Positive surprises often happen at the beginning of a turnaround, or a new growth cycle where sales start to accelerate beyond the historical rates, “surprising” the analyst community. You can read more here. To learn more about this strategy please click here »
Chair in Finance at the Goizueta Business School. Published extensively in the Journal of Finance.
Revenue Surprises and Stock Returns
by Jegadeesh and Livnat
Jegadeesh and Livnat were published in 2006 in the Financial Analysts Journal. They found that the top 20% of stocks that beat analysts estimates outperformed over the next 6 months by 3%. The research paper is linked to above.
This screen is based on a UK dataset.
It uses the following criteria:
Results are sorted by:
And limited to the first 30 Results
| Timeframe | Screen Returns | FTSE 100 | Outperformance |
|---|---|---|---|
| 1 week | 1.00% | -0.50% | 1.5% |
| 1 month | 2.10% | 3.87% | -1.8% |
| 3 months | 2.86% | 5.03% | -2.2% |
| 6 months | 12.78% | 14.35% | -1.6% |
| 1 year | 17.88% | 26.35% | -8.5% |
| Since inception | 13.96% | 24.0% | -10.0% |
| Annualised | 9.48% |
| Maximum Drawdown | -15.77% |
| Average No. of Holdings | 17.6 |
| Diversification Level | Good |
Chart based on an equal weighted portfolio of max 25 stocks rebalanced quarterly. Qualifying shares below updated daily. Past performance not indicative of future returns.
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Can't see the share you expect? View this screen as a checklist to find out why.
