Investors might want to bet on Silicon Motion (SIMO), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.
Analysts' growing optimism on the earnings prospects of this chip 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.
For Silicon Motion, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.
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 $2.13 per share, which is a change of +208.7% from the year-ago reported number.
The Zacks Consensus Estimate for Silicon Motion has increased 10.35% over the last 30 days, as one estimate has gone higher compared to no negative revisions.
Current-Year Estimate Revisions
The company is expected to earn $8.96 per share for the full year, which represents a change of +152.4% from the prior-year number.
The revisions trend for the current year also appears quite promising for Silicon Motion, with two estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 10.93%.
Favorable Zacks Rank
Thanks to promising estimate revisions, Silicon Motion currently carries a Zacks Rank #1 (Strong 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 Silicon Motion because of its solid estimate revisions, as evident from the stock's 18.2% 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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Silicon Motion Technology Corporation (SIMO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).