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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.
Should You Consider Toast?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Toast (TOST) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $0.34 a share 28 days away from its upcoming earnings release on August 4, 2026.
Toast's Earnings ESP sits at +5.43%, which, as explained above, is calculated by taking the percentage difference between the $0.34 Most Accurate Estimate and the Zacks Consensus Estimate of $0.32. TOST 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.
TOST 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 Hewlett Packard Enterprise (HPE) as well.
Hewlett Packard Enterprise is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on September 2, 2026. HPE's Most Accurate Estimate sits at $0.95 a share 57 days from its next earnings release.
Hewlett Packard Enterprise's Earnings ESP figure currently stands at +2.70% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.93.
TOST and HPE'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 Toast, Inc. (TOST)?
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This article originally published on Zacks Investment Research (zacks.com).