Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Dropbox?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Dropbox (DBX) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.77 a share, just 23 days from its upcoming earnings release on August 6, 2026.
Dropbox's Earnings ESP sits at +4.52%, which, as explained above, is calculated by taking the percentage difference between the $0.77 Most Accurate Estimate and the Zacks Consensus Estimate of $0.74. DBX is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
DBX is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Silicon Motion (SIMO) as well.
Silicon Motion, which is readying to report earnings on July 29, 2026, sits at a Zacks Rank #1 (Strong Buy) right now. Its Most Accurate Estimate is currently $2.29 a share, and SIMO is 15 days out from its next earnings report.
Silicon Motion's Earnings ESP figure currently stands at +7.68% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.13.
DBX and SIMO's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
Should You Invest in Dropbox, Inc. (DBX)?
Before you invest in Dropbox, Inc. (DBX), want to know the best stocks to buy for the next 30 days? Check out Zacks Investment Research for our free report on the 7 best stocks to buy.
Zacks Investment Research has been committed to providing investors with tools and independent research since 1978. For more than a quarter century, the Zacks Rank stock-rating system has more than doubled the S&P 500 with an average gain of +24.08% per year. (These returns cover a period from January 1, 1988 through May 6, 2024.)
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Dropbox, Inc. (DBX): Free Stock Analysis Report
Silicon Motion Technology Corporation (SIMO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).