Here’s What You Should Know

Planet Labs PBC (PL) could be a solid addition to your portfolio given its recent upgrade to a Zacks Rank #1 (Strong Buy). An upward trend in earnings estimates — one of the most powerful forces impacting stock prices — has triggered this rating change.

A company’s changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate — the consensus measure of EPS estimates from the sell-side analysts covering the stock — for the current and following years.

Since a changing earnings picture is a powerful factor influencing near-term stock price movements, the Zacks rating system is very useful for individual investors. They may find it difficult to make decisions based on rating upgrades by Wall Street analysts, as these are mostly driven by subjective factors that are hard to see and measure in real time.

Therefore, the Zacks rating upgrade for Planet Labs PBC basically reflects positivity about its earnings outlook that could translate into buying pressure and an increase in its stock price.

The change in a company’s future earnings potential, as reflected in earnings estimate revisions, and the near-term price movement of its stock are proven to be strongly correlated. The influence of institutional investors has a partial contribution to this relationship, as these big professionals use earnings and earnings estimates to calculate the fair value of a company’s shares. An increase or decrease in earnings estimates in their valuation models simply results in higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their bulk investment action then leads to price movement for the stock.

For Planet Labs PBC, rising earnings estimates and the consequent rating upgrade fundamentally mean an improvement in the company’s underlying business. And investors’ appreciation of this improving business trend should push the stock higher.

Empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements, so it could be truly rewarding if such revisions are tracked for making an investment decision. Here is where the tried-and-tested Zacks Rank stock-rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions.

The Zacks Rank stock-rating system, which uses four factors related to earnings estimates to classify stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here >>>>.

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