Peloton (PTON) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.
Analysts' growing optimism on the earnings prospects of this exercise bike and treadmill company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
Consensus earnings estimates for the next quarter and full year have moved considerably higher for Peloton, as there has been strong agreement among the covering analysts in raising estimates.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
For the current quarter, the company is expected to earn $0.06 per share, which is a change of +150.0% from the year-ago reported number.
Over the last 30 days, one estimate has moved higher for Peloton compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 8.47%.
Current-Year Estimate Revisions
The company is expected to earn $0.14 per share for the full year, which represents a change of +146.7% from the prior-year number.
The revisions trend for the current year also appears quite promising for Peloton, with one estimate moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 20.9%.
Favorable Zacks Rank
The promising estimate revisions have helped Peloton earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
Investors have been betting on Peloton because of its solid estimate revisions, as evident from the stock's 22.2% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.
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Peloton Interactive, Inc. (PTON): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).