The Zacks Rank stock-rating system, which uses four factors related to earnings estimates to classify stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. Here is where the tried-and-tested Zacks Rank stock-rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions. Harnessing the Power of Earnings Estimate RevisionsĮmpirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements, so it could be truly rewarding if such revisions are tracked for making an investment decision. Investors should show their appreciation for this improving business trend by pushing the stock higher. Unsponsored ADR imply an improvement in the company's underlying business. Their bulk investment action then leads to price movement for the stock.įundamentally speaking, rising earnings estimates and the consequent rating upgrade for Brilliance China Automotive Holdings Ltd. An increase or decrease in earnings estimates in their valuation models simply results in higher or lower fair value for a stock, and institutional investors typically buy or sell it. The influence of institutional investors has a partial contribution to this relationship, as these big professionals use earnings and earnings estimates to calculate the fair value of a company's shares. The change in a company's future earnings potential, as reflected in earnings estimate revisions, and the near-term price movement of its stock are proven to be strongly correlated. Most Powerful Force Impacting Stock Prices Unsponsored ADR is essentially a positive comment on its earnings outlook that could have a favorable impact on its stock price. They may find it difficult to make decisions based on rating upgrades by Wall Street analysts, as these are mostly driven by subjective factors that are hard to see and measure in real time.Īs such, the Zacks rating upgrade for Brilliance China Automotive Holdings Ltd. Since a changing earnings picture is a powerful factor influencing near-term stock price movements, the Zacks rating system is very useful for individual investors.
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