A Company's First Profit Can Mean Big Gains for Investors


"Those are the stocks that will likely see the best new demand from new investors: people who are now, all of a sudden, willing to take notice of the stock."


With earnings season winding down, I've been running screens with the concept to find companies that have just recently shown their first quarterly profit within the last year.

The idea is to find companies that have not shown a profit for at least the previous 4 quarters, but have just recently produced their first profit this last quarter.

I run this screen after every earnings season. And here we are again.

Some of these companies will be relatively new, and this recent profit may be the only profit in the company's history so far.

Other companies may have a long history of profitability, but for whatever reason haven't seen a profit in a while—but has finally returned to profitability.

I like this concept because, if the trend has been one of improvement, there's a good chance the trend will continue. This is true whether you've been profitable or are just getting profitable.

But some people (like myself for example) dislike buying companies that cannot show a profit. And there are many others who won't even consider a stock unless it's making money.

Losing less than the previous quarter is indeed an improvement. And in that respect, by definition, it is growth, i.e., they're growing less unprofitable. And it's even better if the losses are less and less in each sequential quarter.

But there's something entirely different about growth AND being profitable. And those are the stocks that will likely see the best new demand from new investors; people who are now, all of a sudden, willing to take notice of, and pay attention to, the stock.

And that's what we're screening for today:

  • EPS for the previous 4 Quarters less than or equal to 0
    (This means in each of the previous 4 quarters (except the most recently reported quarter) the company has reported earnings of less than or equal to zero, i.e., no profit.)
  • EPS for the recently reported quarter greater than 0
    (This time, the company reported earnings greater than zero, meaning they finally showed a profit.)
  • Current Price greater than or equal to 5
    (I prefer to only look at companies over $5. But if you drop this item from the screen, it'll currently produce three times as many stocks coming thru the screen.)

The screen is pretty simple yet pretty powerful.

Kevin Matras
Zacks Investment Research

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