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.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

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 Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete 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.

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 Crocs?

Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Crocs (CROX Quick QuoteCROX - Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $3.16 a share, just 27 days from its upcoming earnings release on November 7, 2024.

CROX has an Earnings ESP figure of +1.28%, which, as explained above, is calculated by taking the percentage difference between the $3.16 Most Accurate Estimate and the Zacks Consensus Estimate of $3.12. Crocs 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.

CROX is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Roblox (RBLX Quick QuoteRBLX - Free Report) .

Roblox, which is readying to report earnings on October 31, 2024, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently -$0.34 a share, and RBLX is 20 days out from its next earnings report.

The Zacks Consensus Estimate for Roblox is -$0.39, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +11.83%.

Because both stocks hold a positive Earnings ESP, CROX and RBLX 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 >>