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.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Alphabet?
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. Alphabet (GOOGL) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $2.92 a share, just 30 days from its upcoming earnings release on July 22, 2026.
GOOGL has an Earnings ESP figure of +2.13%, which, as explained above, is calculated by taking the percentage difference between the $2.92 Most Accurate Estimate and the Zacks Consensus Estimate of $2.86. Alphabet is one of a large database of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
GOOGL is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is Dropbox (DBX).
Dropbox, which is readying to report earnings on August 6, 2026, sits at a Zacks Rank #2 (Buy) right now. Its Most Accurate Estimate is currently $0.77 a share, and DBX is 45 days out from its next earnings report.
For Dropbox, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.74 is +4.52%.
GOOGL and DBX's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 Alphabet Inc. (GOOGL)?
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Alphabet Inc. (GOOGL): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).