Certainly, how a company has performed in the past is helpful information because it gives you strong clues about how it will handle the future. Barring some unforeseen circumstance, most companies move in a predictable manner.
What you can’t predict is the what market and economy will do and how that may change the way a company performs, but we do the best we can.
Stock analysts for major investment banks, brokerage houses and other institutions track actively traded stocks and produce earnings estimates.
Revised Numbers
These numbers, which are constantly revised, are guesses about what the company will be earning in the coming years. Major changes in the estimates may cause the stock to move up or down.A number of websites report these estimates on their quote screens. Most collect a number of estimates and average them for a consensus estimate in one form or another.
One of the more comprehensive sites is Reuters.com, which has several estimates including earnings and revenues. Enter a stock symbol for a quote, and then click on the “Estimates” link in the left hand column.
Other sites also provide help with earnings information, including MorningStar.Com through its stock screening function. You can select a level of projected earnings growth as part of you screen.
Use Caution
You should view earnings estimates with a strong dose of caution. Any prediction of the future is bound to be wrong some of the time. However, if no analysts are predicting earning growth for a company that should be a caution.As a rule of thumb, investing in companies with the potential for solid future earnings growth is a good idea for the long-term investor. If a company has a good history of earnings growth that is a good sign that future earnings growth is possible.
A good candidate for investment might be a company with five years of solid earnings growth and strong earnings growth estimates for the coming five years.
