There is fairly widespread consensus among the best investors of all time that the most important factor that determines whether or not a stock will increase in value, and by how much it will increase, is a company's reported earnings per share. EPS is calculated by dividing the total profits of a firm by the total number of shares outstanding. It is not unusual for companies to issue more stock in secondary offerings or to buy back stock, both of which affect the total number of shares outstanding and a company's EPS. Money managers favor EPS over net profits because the figure takes into account dilution for events like secondaries and buy backs.
Successful money managers like Peter Lynch of Fidelity Investments fame and Warren Buffett, the chief executive officer of Berkshire Hathaway Inc. (NYSE: BRK-A, BRK-B), each agree that shares of companies increase when they grow their EPS. Each has been observed buying shares when market price trend lines fall below earnings trend lines, as reported by Forbes. The rate of bottom-line EPS growth is also directly related to the rate of growth of a firm's revenues.
Big-cap growth: a rare combination
Market capitalization is the amount of money it would take to buy a publicly traded company outright; the number of all the existing shares multiplied by the current price. By any measure, companies that have grown their market capitalization above $10 billion, and continue to deliver 20-plus-percent EPS and revenue growth, are performing at a high level.
Such a high level that only 11 New York Stock Exchange- and 12 Nasdaq-listed firms make the grade in a screen insisting upon such data using the CNBC stock screener.
Included among NYSE-listed firms with $10-billion-plus market caps and 20-percent-plus EPS and revenue growth are: Acuity Brands, Inc. (AYI); Alliance Data Systems Incorporated (ADS); Becton, Dickinson and Company (BDX); Essex Property Trust, Inc.
(ESS); The J. M. Smucker Company (SJM); Laboratory Corporation of America Holdings (LH); Medtronic plc (MDT); Reynolds American Inc. (RAI); SL Green Realty Corp. (SLG); Vantiv, Inc. (VNTV); and Zimmer Biomet Holdings, Inc. (ZBH).
AMZN, FB, and NFLX among strongest publicly traded companies' shares
Nasdaq-listed stocks meeting the screen criteria include: Amazon.com, Inc.
(AMZN); Baidu, Inc. (BIDU); Celgene Corporation (CELG); Cerner Corporation (CERN); Dollar Tree, Inc. (DLTR); Facebook, Inc. (FB); Level 3 Communications, Inc. (LVLT); NetEase, Inc. (NTES); Netflix, Inc. (NFLX); Norwegian Cruise Line Holdings Ltd. (NCLH); Regeneron Pharmaceuticals, Inc. (REGN); and ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA).
Amazon.com has a market capitalization of $384.09 billion with shares last quoted at $808.33, sitting 4.6 percent below their all-time high of $847.21, printed on October 6, 2016. The internet behemoth is expected to report fourth-quarter 2016 financial results after the close of trading on Thursday, February 2. Analysts are expecting quarterly AMZN EPS to grow by 35 percent to $1.35 and revenues to climb 25 percent to $44.67 billion.
Fourth-quarter street EPS expectations have been reduced significantly over the past 90 days, by 37.5 percent, from $2.16. Estimates for the first quarter of 2017 have also been cut, by 23.9 percent, from $2.22 to $1.69.
