Want Higher Gains? These 2 Tech Stocks Could Outperform Earnings

Understanding Earnings Surprises and Their Impact on the Stock Market

Earnings reports play a crucial role in shaping investor sentiment and stock price movements. For many investors, the key metric to watch is a company’s earnings per share (EPS). This figure not only reflects the financial health of a company but also influences expectations for future performance. When a company exceeds its earnings estimates, it often leads to positive stock price reactions, while missing expectations can result in losses.

The stock market operates on expectations, and companies that consistently outperform these expectations are typically rewarded with higher valuations. This has led many investors to search for opportunities where a company might deliver a "positive earnings surprise." One approach to identifying such opportunities involves tracking what is known as "earnings whispers" or analyzing companies that are likely to beat their quarterly earnings forecasts.

The Zacks Earnings ESP Tool: A Strategic Approach

One of the tools used by investors to identify potential earnings surprises is the Zacks Earnings ESP, or Expected Surprise Prediction. This tool focuses on recent analyst revisions to earnings estimates, which can indicate new information that may lead to more accurate predictions.

The core idea behind the Zacks Earnings ESP is that if an analyst revises their earnings estimate before a company releases its results, it could signal a shift in expectations. By comparing the most recent estimate (known as the Most Accurate Estimate) with the overall Zacks Consensus Estimate, the tool calculates the percentage difference, which becomes the ESP figure. This data is then combined with the Zacks Rank, a rating system that categorizes stocks based on their expected performance relative to the broader market.

For instance, when combining a Zacks Rank of #3 (Hold) or better with a positive Earnings ESP, stocks have historically delivered positive surprises 70% of the time. Over a 10-year period, this strategy has generated an average annual return of 28.3%.

Zacks Rank Explained

The Zacks Rank provides a framework for evaluating a stock's potential. A #3 (Hold) ranking suggests that a stock is expected to perform in line with the broader market, which applies to approximately 60% of all stocks covered. Meanwhile, a #2 (Buy) rank indicates that a stock is expected to outperform the market, and a #1 (Strong Buy) rank suggests even stronger performance. These rankings help investors make informed decisions about which stocks to consider for their portfolios.

Evaluating Affirm Holdings (AFRM)

Affirm Holdings (AFRM) currently holds a Zacks Rank of #3 (Hold), and its Most Accurate Estimate stands at $0.13 per share. With its earnings report scheduled for August 28, 2025, just 10 days away, the company has an Earnings ESP of +19.25%. This is calculated by comparing the Most Accurate Estimate of $0.13 to the Zacks Consensus Estimate of $0.11.

This significant positive ESP suggests that Affirm Holdings could potentially exceed expectations when it releases its quarterly results. Investors interested in capitalizing on this opportunity should consider using the Zacks Earnings ESP Filter to identify other stocks with similar potential.

Another Strong Candidate: Toast (TOST)

Toast (TOST) is another stock that fits the criteria of having a positive Earnings ESP. It currently holds a Zacks Rank of #3 (Hold), with a Most Accurate Estimate of $0.26 per share. Its earnings report is set for November 6, 2025, and the Zacks Consensus Estimate is $0.25. This gives TOST an Earnings ESP of +4.84%.

Like Affirm Holdings, Toast is part of a larger group of Computer and Technology stocks with positive ESPs. Investors looking to build a diversified portfolio during earnings season should consider exploring these opportunities.

Finding Opportunities Before Earnings Reports

Utilizing tools like the Zacks Earnings ESP Filter can help investors uncover stocks with the highest probability of delivering positive or negative surprises. This allows for strategic buying or selling ahead of earnings reports, potentially leading to profitable trades during earnings season.

By leveraging insights from the Zacks Earnings ESP and Zacks Rank, investors can make more informed decisions and improve their chances of capturing strong returns in the stock market.