earnings momentum
Earnings momentum is the pattern of a company's profits growing faster and faster, quarter after quarter, which often pulls its share price along for the ride.
In plain English
Think of a child on a bicycle going up a slight hill. The first push on the pedal is hard, the second push is a little easier because they have found their rhythm, and by the fourth or fifth push they are flying without even trying so hard. That building speed, that sense of things getting easier and faster at the same time, is exactly what earnings momentum looks like in a company's results.
In investing terms, earnings momentum describes a company whose profits are more than growing, but growing at an increasing pace. It is not enough for a company to make more money than last year. Investors watching for momentum want to see the growth rate itself speeding up, quarter after quarter.
Take a Nigerian example. A listed company like MTN Nigeria might report profit growth of 10 percent in one quarter, then 15 percent the next, then 22 percent after that. Analysts and fund managers who track this will often buy the shares, betting that the trend continues and the market rewards it with a higher share price, because good news tends to attract more buyers, who push the price up further.
A United Kingdom example works the same way. A retailer like Next might show accelerating profit growth after a strong Christmas trading period, and investors on the London Stock Exchange respond by bidding up the share price in anticipation of even stronger results ahead.
For someone in the diaspora sending money home or building an investment portfolio from abroad, earnings momentum is a useful clue rather than a guarantee. It tells you where the crowd's attention and money are likely to flow next, but momentum can slow down just as quickly as it built up, so it rewards attention, not blind faith.
A company earns ₦2 billion in profit in Q1, ₦2.4 billion in Q2, and ₦3 billion in Q3. The naira growth is rising each quarter, which is earnings momentum in action, and it often draws more buyers into the stock.
Questions people ask
Is earnings momentum the same as just having good profits?
No. A company can have solid profits that are flat or shrinking slightly, which is not momentum. Momentum specifically means the rate of growth itself is picking up speed from one period to the next.
Can earnings momentum reverse suddenly?
Yes, and it often does. A single disappointing quarter, a change in the economy, or new competition can slow growth quickly, and share prices that rose on momentum can fall just as fast when the trend breaks.
How do I check a Nigerian company's earnings momentum myself?
Look at its last four to six quarterly results, available from the Nigerian Exchange or the company's investor relations page, and compare the percentage growth in profit from one quarter to the next rather than just the profit figure itself.
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