Positive Surpries With Below-Average P/Es

by John Bajkowski

Positive Surpries With Below Average P/Es Splash image

When the markets are volatile, investors take comfort in stocks announcing better-than-expected earnings. Notably, contrarian investors have observed that positive surprises are even more dramatic events for value-oriented stocks since the surprise often triggers a change (for the better) in the market perception of a company.

This issue’s First Cut screens for stocks with below-average forward price-earnings ratios (price divided by expected earnings per share) that have reported quarterly earnings that surpassed the consensus forecast—a positive earnings surprise.

Changes in a stock’s price resulting from an earnings surprise may be immediate, but the surprise may also have a long-term price effect. This means that it may not be too late to buy into an attractive company after a better-than-expected earnings report is released. Studies indicate that the effect can persist for as long as a year after the announcement. Firms with a significant surprise also often have earnings surprises in subsequent quarters.

...To continue reading this article you must be registered with AAII.

Gain exclusive access to this article and all of the member benefits and investment education AAII offers.
JOIN TODAY for just $29.
Log in
Already registered with AAII? Login to read the rest of this article.

Register for FREE
to read this article and receive access to future AAII.com articles.
John Bajkowski is president of AAII.


No comments have been added yet. Add your thoughts to the discussion!

You need to log in as a registered AAII user before commenting.
Create an account

Log In