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

Benjamin Rains
Top-line growth and solid show by Population Health, Revenue Cycle and IT Works are likely to aid Cerner's (CERN) Q2 earnings. However, expected decline in bookings is likely to be a dampener.

With second quarter 2019 earnings season quickly approaching, it is a perfect time to take a look at a ‘First Profit’ stock screen. The idea here is to search for companies that just reported their first quarterly profit within the last year.  

More specifically, the screen searches for firms that just posted their first profit last quarter after not posting a profit for at least the previous 4 quarters. Clearly, this is a screen best run after every earnings season.

These companies may vary widely. Some of the firms might be new, and this recent profit is perhaps the only profit in its short history. Meanwhile, other companies might have held an impressive and long history of quarterly profitability, but for whatever reason haven't seen a profit in a while. Therefore, the turn to profit could spark a turning point that management had promised or Wall Street had been clamoring for.

The concept is relatively simple: if the trend has been one of improvement, there is a solid chance the trend will continue. This is true whether a company has been profitable or is just reaching that key inflection point.

With that said, some investors will not touch companies that can’t show a profit. On top of that, there are many more who won’t consider a stock unless it’s making money.

Obviously, losing less money than the prior quarter is a positive sign, as it shows growth. Then firms hit a point where they grow and grow and eventually become profitable. These are the stocks that will likely see more demand from new investors…

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

(Stocks that are trading for less than $5 are more speculative.)

The screen is pretty simple yet pretty powerful. Here are 5 stocks that made it through this week's screen:

Cronos Group Inc. (CRON)

MercadoLibre, Inc. (MELI)

Arena Pharmaceuticals, Inc. (ARNA)

Cenovus Energy Inc (CVE)

Scorpio Tankers Inc. (STNG)

Get the rest of the stocks on this list and start looking for the newest companies that fit these criteria. It's easy to do. And it could help you find your next big winner. Start screening for these companies today with a free trial to the Research Wizard. You can do it.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance/.

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Viasat Inc. (VSAT) : Free Stock Analysis Report
 
Scorpio Tankers Inc. (STNG) : Free Stock Analysis Report
 
MercadoLibre, Inc. (MELI) : Free Stock Analysis Report
 
Cenovus Energy Inc (CVE) : Free Stock Analysis Report
 
Cronos Group Inc. (CRON) : Free Stock Analysis Report
 
Arena Pharmaceuticals, Inc. (ARNA) : Free Stock Analysis Report
 
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