Why Accelerating EPS Growth is a potentially better alternative strategy

Research of the 600 best-performing stocks between 1952 and 2001 shows three of four reported year-over-year earnings-per-share growth averaging 70% in the quarter before beginning their winning runs. The other 25% averaged EPS growth of 90 % in the quarter immediately following the start of their runs. Those included Dell’s (DELL) 1,780% advance, Cisco Systems’ (CSCO) 1,467% run and America Online’ s 557% surge. Other examples run as far back as 1917 and as recently as the past year’s gains by Krispy Kreme Doughnuts (KKD) and Lumber Liquidators (LL).

While investors should always look for strong profit growth, Pelican Hill always seeks accelerating EPS growth and has formulated a unique strategy for finding and maintaining assets with the highest accelerating EPS growth. Research shows that earnings growth typically will accelerate sometime in the 10 quarters before a big advance. But what exactly does “accelerate” mean here?

If a company’s per-share profit rose 25% in this year’s first quarter (always to compare EPS to the year-ago quarter, not the previous quarter, to avoid any distortion from seasonality.) During the second quarter, the company’s EPS gained 50%. Finally, third-quarter  EPS surged 75%. These results represent accelerating EPS growth – the rate of growth over the year ago period increases from quarter to quarter. The company has not only managed strong gains in profit (at and beyond the 25% commonly found in winning stocks before their major advances), but these increases have ramped up. They’ve accelerated from 25% to 50% to 75%.

performance. The greater the volatility, the greater the potential profit and also the greater the risk. Astute investors cannot afford to buy good stocks or good stock funds in year 2000 only to have market volatility cause them to trade at the same price 12 years later. Astute investors are looking for something better. This is where Pelican Hill’s Accelerating EPS Growth Fund comes in.

Formed primarily to assist large institutions and corporations with their pension accounts in almost any market climate, Pelican Hill Funds can be a good option to replace an underperforming corporate or personal investment, especially in today’s volatile markets.