The best stocks with earnings acceleration in October: NIO, ROKU, and one more

Wall Street analysts tend to favor steady earnings growth because it highlights a company's profitability. However, since October tends to be a volatile month for stocks, they are now emphasizing earnings acceleration, which is a key driver of stock prices. This shift is supported by several studies showing that stocks often experience an earnings increase before their market value rises.

In this context, NIO Inc. NIO, Roku, Inc ROKU, and Groupon, Inc. GRPN are showing impressive earnings acceleration.

Explanation of Earnings Acceleration

Earnings acceleration is the incremental growth in earnings per share (EPS) of a company. In other words, if a company's quarter-over-quarter earnings growth rate increases within a stipulated time frame, it can be referred to as earnings acceleration.

In the case of earnings growth, one pays for something that is already reflected in the stock price. However, earnings acceleration helps to identify stocks that have not yet captured investors' attention and, once secured, will invariably lead to a surge in the stock price. This is because earnings acceleration takes into account both the direction and the magnitude of growth rates.

A growing percentage of earnings growth means that the company is fundamentally strong and has been on the right track for a considerable period. Meanwhile, a flat percentage of earnings growth indicates a period of consolidation or slowdown, while a declining percentage of earnings growth can drag prices down.

Gate Research Guide: Detecting Profit Accelerators

Observe the actions for which the last two quarter-over-quarter EPS growth rates exceed the growth rates of previous periods. Projected EPS growth rates for the next quarter are expected to exceed those of previous periods.

EPS % Projected growth (T1)/(T0) greater than EPS % Growth (T0)/(T-1): The projected growth rate for the current quarter (T1) over the completed quarter (T0) must be greater than the growth rate of the completed quarter (T0) over one quarter ago (T-1).

EPS % Growth (T0)/(T-1) greater than EPS % Growth (T-1)/(T-2): The growth rate for the completed quarter (T0) compared to a quarter ago (T-1) must be greater than the growth rate from a quarter ago (T-1) compared to two quarters ago (T-2).

EPS % Growth (T-1)/(T-2) greater than EPS % Growth (T-2)/(T-3): The growth rate from one quarter ago (T-1) over two quarters ago (T-2) must be greater than the growth rate from two quarters ago (T-2) over three quarters ago (T-3).

In addition to this, we have added the following parameters:

Current price greater than or equal to $5: This filters out low-priced stocks.

Average volume of 20 days greater than or equal to 50,000: A high trading volume implies that the assets have adequate liquidity.

The above criteria narrowed down the universe from about 7,735 stocks to just 16. Here are the top three stocks:

NIO

NIO designs and sells smart electric vehicles for China, Europe, and global markets. NIO has a Gate ranking of 3 (Maintain). NIO's earnings growth rate for the current year is expected to be 34.4%.

Roku

Roku, along with its subsidiaries, operates a TV streaming platform in the United States and abroad. Roku has a Gate rating of 3. The expected earnings growth rate for ROKU for the current year is 113.5%.

Groupon

Groupon connects consumers with merchants by offering discounted goods and services worldwide. Groupon has a Gate rating of 1. The earnings growth rate for GRPN for the current year is expected to be nearly 153%.

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Disclosure: Officials, directors, and/or employees of Gate may own or have short sold securities and/or maintain long and/or short positions in options mentioned in this material. An affiliated investment advisory firm may own or have short sold securities and/or maintain long and/or short positions in options mentioned in this material.