Research suggests that stocks with strong price momentum and upward EPS revisions tend to outperform. By prioritizing these factors, we aim to identify companies that demonstrate both sustained growth and improving earnings potential.
We used the CPMS engine to screen three companies based on strong earnings, price momentum, and quality. Stocks had to rank in the top 20th percentile by three-year average return on capital and forward P/E, with the bottom 80% excluded. Additional criteria included a market cap above $1 billion, price returns over 3% (three months) and 6% (six months), positive EPS revisions, and annualized EPS growth exceeding 7% over three years
The three stocks that met these criteria were Pinterest Inc., Expedia Group Inc., and Lululemon Athletica Inc.
Pinterest (PINS)
Pinterest has a Growth score of 86 and a Quality score of 67, indicating its strong ranking compared to its sector and the overall market. CPMS helps determine the most suitable strategy for a stock, and Pinterest’s strong scores in Growth and Quality make it an ideal fit for the Quality Growth Opportunities strategy. This ESG-focused strategy is designed for sustainability-conscious investors seeking stocks with credible growth potential supported by steady earnings momentum. Over the past five years, this strategy has outperformed the S&P 500 by 2.4%. However, Pinterest’s volatility score of 37 suggests elevated risk, which may result in higher price fluctuations. Investors should take this into account when considering the stock.
Examining Pinterest’s key metrics reveals why it qualifies for this quality growth strategy. In the Factors Detail section of CPMS, Pinterest ranks above the 80th percentile in almost all growth metrics compared to the services sector and the market. Its strengths include a NOPAT growth of 103.75%, an EVA growth of 490.52%, and Free Cash Flow growth of 8.79% over the past three years.
Expedia Group (EXPE)
Expedia stands out in both Growth and Momentum, with a score of 69 in each category.
Over the past year, the stock has exhibited strong price momentum, significantly outperforming the market. Over the past 12 months, EXPE has returned 48.5%, compared to the market’s 20.6%, generating a net excess return of 27.9%. Its performance is even more striking over shorter periods, with a six-month return of 46.1% versus the market’s 8.3%, and a nine-month return of 80.0% compared to the market’s 15.9%, resulting in a staggering 64.2% net outperformance.
With this strong price momentum, paired with solid growth, EXPE has a score of 97 for the Earnings Growth strategy. The CPMS US Earnings Growth Strategy is suited for investors seeking high-growth stocks and is designed to identify companies with strong reported returns on equity—one of Expedia’s defining strengths.
Lululemon Athletica (LULU)
Lululemon has a Growth score of 81 and a Quality score of 79. Additionally, it scores 95 in the Asset Growth strategy and 91 in the Price Momentum strategy.
The Asset Growth strategy is designed for aggressive investors looking for stocks with high book value growth and positive analyst estimate revisions. Secondary factors include market recognition variables, positive earnings surprises, and quarterly earnings momentum. The Price Momentum strategy, on the other hand, is aimed at short-term, growth-oriented investors and emphasizes market recognition along with changes in earnings expectations. Both strategies have outperformed the S&P 500, generating double-digit excess returns, and Lululemon’s recommendation in both highlights its strong potential. However, Lululemon’s volatility score of 38 indicates elevated risk, which could lead to increased price fluctuations. Investors should be aware of this heightened volatility when considering the stock.
By leveraging the CPMS engine, investors can screen and identify stocks that align with specific investment criteria. In this analysis, we focused on stocks that exhibit strong price momentum and upward EPS revisions. Pinterest, Expedia, and Lululemon all demonstrated these key metrics, emphasizing growth along with quality or momentum. While these stocks offer the potential for higher returns, investors must be willing to accept the inherent risks associated with price momentum investing.
In conclusion, the CPMS engine provides a valuable tool for identifying high-potential stocks that align with specific investment strategies. By focusing on strong price momentum and earnings growth, investors can make more informed decisions. However, it is essential to consider individual risk tolerance and investment objectives before making any commitments. A well-balanced approach that incorporates both fundamental analysis and strategic insights from CPMS can help investors navigate market uncertainties and optimize portfolio performance.
