Jack notes that research over the last 45 years on PEAD show that, "...when companies report better-than-expected earnings, their share prices tend to keep rising faster than the broad market for six months to a year after the news is out."
Mr. Hough also gives a reason why our experiment may have failed. One of our readers, Jason, also picked up on the theme in another post. I quote Mr. Hough. "That's not to say that individual investors should buy stocks based solely on one sunny earnings announcement. Rather, those searching for stock bargains might want to start by screening for companies that have topped quarterly estimates over the past year and whose remaining earnings projections are on the rise. (Emphasis mine)
In other words, when you are using earnings surprises as a screen, you want to pick stocks with good earnings momentum as well. As Jason said, you want to pick good companies at the end of the day.
