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.

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 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.

Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.

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 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 Quick QuoteRBLX - Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at -$0.34 a share 28 days away from its upcoming earnings release on October 31, 2024.

Roblox's Earnings ESP sits at +11.83%, which, as explained above, is calculated by taking the percentage difference between the -$0.34 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.39. RBLX is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

RBLX is part of a big group of Consumer Discretionary stocks that boast a positive ESP, and investors may want to take a look at Crocs (CROX Quick QuoteCROX - Free Report) as well.

Crocs, which is readying to report earnings on November 7, 2024, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $3.16 a share, and CROX is 35 days out from its next earnings report.

The Zacks Consensus Estimate for Crocs is $3.11, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.4%.

RBLX and CROX'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 >>