Investors might want to bet on Spotify (SPOT), 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.
The upward trend in estimate revisions for this music-streaming service operator reflects growing optimism of analysts on its earnings prospects, 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 Spotify, 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
The company is expected to earn $1.08 per share for the current quarter, which represents a year-over-year change of +163.91%.
Over the last 30 days, one estimate has moved higher for Spotify compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 11.47%.
Current-Year Estimate Revisions
For the full year, the company is expected to earn $4.78 per share, representing a year-over-year change of +262.03%.
There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, one estimate has moved up for Spotify versus no negative revisions. This has pushed the consensus estimate 6.45% higher.
Favorable Zacks Rank
The promising estimate revisions have helped Spotify earn 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
While strong estimate revisions for Spotify have attracted decent investments and pushed the stock 8.1% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
