Bet on 5 Leading Stocks With Increasing P/E Ratios

Exploring Stocks with Increasing P/E Ratios

Many investors gravitate toward stocks with low price-to-earnings (P/E) ratios, believing that undervalued stocks have greater growth potential. The logic is simple: if a company's market price doesn't fully reflect its strong earnings, there may be room for the stock to appreciate.

However, focusing solely on low P/E ratios isn't the only way to find promising investments. Stocks with rising P/E ratios can also deliver impressive returns. Notable examples include BJ's Wholesale Club, Monarch Casino & Resort, Central Garden & Pet, Super Group, and Masimo.

The Significance of a Rising P/E Ratio

As a company's earnings grow, its stock price often follows suit. When analysts anticipate higher future earnings, increased demand can drive the share price higher. The P/E ratio essentially reflects how much investors are willing to pay for each dollar of earnings.

For instance, if an investor buys a stock with a P/E of 30, they're paying $30 for every $1 of earnings, expecting the company's profits to accelerate due to strong fundamentals.

A steadily climbing P/E ratio typically signals that investors have confidence in the company's prospects and anticipate positive developments ahead.

Research has shown that some stocks experience P/E ratio increases of more than 100% from their breakout point in a market cycle. Identifying these stocks early in their upward trajectory can lead to substantial gains.

How to Identify Winning Stocks with Rising P/E Ratios

To pinpoint stocks with upward-trending P/E ratios, the following screening criteria are used:

• Current year EPS growth estimate is at least equal to last year’s actual growth
• Last year’s EPS percentage change is zero or positive (indicating stable or growing earnings)
• Four-week price change exceeds the 12-week price change
• 12-week price change surpasses the 24-week price change (showing consistent price momentum)
• Four-week price change relative to the S&P 500 is higher than the 12-week relative change
• 12-week price change relative to the S&P 500 is greater than the 24-week relative change (demonstrating outperformance against the market)
• 12-week price change is at least 20% higher than the 24-week change, but not more than 100% (a 20% increase from the breakout point suggests an emerging uptrend, while a jump over 100% may indicate limited further upside)
• Zacks Rank of 1 or 2 (only stocks rated Strong Buy or Buy are included)
• Average 20-day trading volume of at least 50,000 shares (ensuring sufficient liquidity)

Applying these filters narrows the field from over 7,700 stocks to just 61 candidates.

Five Standout Stocks with Rising P/E Ratios

• BJ's Wholesale Club: Ranked #2 by Zacks, this retailer is a top choice for shoppers seeking essentials and more.
  Average earnings surprise over the past four quarters: 10.32%.
• Monarch Casino & Resort: This company focuses on delivering exceptional guest experiences with top-notch gaming, dining, and hospitality. Zacks Rank #2.
  Average four-quarter earnings surprise: 3.48%.
• Central Garden & Pet: Aiming to solidify its leadership in the U.S. market, this company holds a Zacks Rank #2.
  Average four-quarter earnings surprise: 42.24%.
• Super Group: As a holding company for online sports betting and gaming, Super Group is rated #1 by Zacks.
  Average four-quarter earnings surprise: 17.89%.
• Masimo: Specializing in non-invasive monitoring systems, Masimo is a Zacks Rank #2 company.
  Average four-quarter earnings surprise: 12.39%.

To access the complete list of stocks, you can sign up for a complimentary two-week trial of the Research Wizard. This tool allows you to apply these screens and even design and test your own investment strategies before committing capital.

Start Your Research with the Research Wizard

The Research Wizard offers a user-friendly interface and clear instructions, making it easy to analyze stocks and uncover potential opportunities. Begin your free trial today—simply enter your findings from economic reports and see what promising stocks emerge.

Discover Zacks' Top Stock Picks

Since 2000, Zacks' leading stock selection strategies have consistently outperformed the S&P 500's average annual return of 7.7%. Their top picks have delivered remarkable average yearly gains of:

• +48.4%
• +50.2%
• +56.7%

You can now access these live recommendations at no cost or obligation.

Looking for the latest guidance from Zacks Investment Research? Download their report on the 7 Best Stocks for the Next 30 Days for free.

Additional Resources

• Masimo Corporation (MASI): Free Stock Analysis Report
• BJ's Wholesale Club Holdings, Inc. (BJ): Free Stock Analysis Report
• Central Garden & Pet Company (CENT): Free Stock Analysis Report
• Monarch Casino & Resort, Inc. (MCRI): Free Stock Analysis Report
• Super Group (SGHC) Limited (SGHC): Free Stock Analysis Report

This article was first published by Zacks Investment Research.

Zacks Investment Research