Look for Accelerating Quarterly Earnings Growth

My studies of thousands of the most successful concerns in America proved that virtually every corporate stock with an outstanding upward price move showed accelerated quarterly earnings increases some time in the previous ten quarters before the towering price advance began.

Therefore, what is crucial is not just that earnings are up or that a certain price-to-earnings ratio (a stock's price divided by its last twelve months' earnings per share) exists; it is the change and improvement from the stock's prior percentage rate of earning increases that causes a supreme price surge. Wall Street now calls these earnings surprises.


I once mentioned this concept of earnings acceleration to Peter Vermilye, the former head of Citicorp's Trust Investment Division in New York City. He liked the term and feit it was much more accurate
and relevant than the phrase "earnings momentum" sometimes used by Investment professionals.

If a Company's earnings are up 15% a year and suddenly begin spurting 40% to 50% a year, it usually creates the basic conditions for important stock price improvement.