Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Datadog?
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. Datadog (DDOG) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.51 a share 27 days away from its upcoming earnings release on May 5, 2026.
Datadog's Earnings ESP sits at +1.39%, which, as explained above, is calculated by taking the percentage difference between the $0.51 Most Accurate Estimate and the Zacks Consensus Estimate of $0.5. DDOG 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.
DDOG 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 HubSpot (HUBS) as well.
Slated to report earnings on May 14, 2026, HubSpot holds a #1 (Strong Buy) ranking on the Zacks Rank, and its Most Accurate Estimate is $2.46 a share 36 days from its next quarterly update.
The Zacks Consensus Estimate for HubSpot is $2.44, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.78%.
DDOG and HUBS' 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 Datadog, Inc. (DDOG)?
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This article originally published on Zacks Investment Research (zacks.com).