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But, when it comes to the best of breed outlier companies, earnings follow superstar stocks. And you can spot them following institutional demand.
Earnings Follow Superstar Stocks
Let’s start with the market first. Below shows how the price of the S&P 500 plots a strong correlation to its trailing 12-month EPS since 2012.
Understanding the overall earnings picture will give you an edge. But when it comes to the best stocks out there, the stock often moves prior to exploding earnings.
Take NVIDIA Corp. (NVDA) as an example. Below plots the stock price since 2012 overlaid against its 12-month trailing EPS. Notice 3 periods when the stock rallied well ahead of the earnings pop:
Circled first, NVDA started jumping in 2015, when trailing earnings were .28 per share. Fast forward to January 2019, EPS rallied to $1.87.
Observing the 2nd green circle, the stock started juicing in the 2nd half of 2019 when trailing EPS was at a low of $1.11. Fast forward to April 2022, EPS ballooned to $3.85.
Let’s look at another recent example, Super Micro Computer (SMCI).
Below plots the stock price overlaid against earnings since 2012. Notice last summer, the stock began to explode higher in the middle of the bear market!
Shares and earnings were muted for years. Then in June 2022, the stock began to march higher. Back then, the 12-month trailing EPS sat at $3.44, ballooning to $10.61 by August 2023.
This proves once again how earnings follow superstar stocks.
So, what can investors do to catch these trending stocks early? Follow the Big Money. MAPsignals is all about finding the best stocks under institutional accumulation.
Below plots NVIDIA each time it was profiled in our research. This blue signal is made up of 2 drivers: institutional buy pressure and healthy fundamentals like earnings growth.
Below I’ve noted the 3 circles for NVDA:
Next, here’s SMCI footprints. Again, blue bars appeared last summer as earnings were set to explode:
Please note, this buying began right in the teeth of a nasty bear market. That’s the power of Big Money analysis.
The Bottom Line & Explanatory Video
In general, stocks follow earnings. The relationship is undeniable. But, the bigger prize is in spotting outlier stocks which are on professional investors’ radar.
Follow the Big Money and never forget that earnings follow superstar stocks.
These insights are a truncated view of MAPsignals research which you can learn more here.
Disclosure: As of the time of this writing, the author holds no positions in NVDA or SMCI.
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