All You Need to Know About Applied Therapeutics Rating Upgrade to Buy

Applied Therapeutics Inc. APLT appears an attractive pick, as it has been recently upgraded to a Zacks Rank #2 (Buy). This upgrade is essentially a reflection of an upward trend in earnings estimates — one of the most powerful forces impacting stock prices.

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.

The power of a changing earnings picture in determining near-term stock price movements makes the Zacks rating system highly useful for individual investors, since it can be difficult to make decisions based on rating upgrades by Wall Street analysts. These are mostly driven by subjective factors that are hard to see and measure in real time.

As such, the Zacks rating upgrade for Applied Therapeutics is essentially a positive comment on its earnings outlook that could have a favorable impact on its stock price.

Most Powerful Force Impacting Stock Prices

The change in a company’s future earnings potential, as reflected in earnings estimate revisions, has proven to be strongly correlated with the near-term price movement of its stock. 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 transaction of large amounts of shares then leads to price movement for the stock.

Fundamentally speaking, rising earnings estimates and the consequent rating upgrade for Applied Therapeutics imply an improvement in the company’s underlying business. Investors should show their appreciation for this improving business trend by pushing the stock higher.

Harnessing the Power of Earnings Estimate Revisions

As empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements, tracking such revisions for making an investment decision could be truly rewarding. 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.

Earnings Estimate Revisions for Applied Therapeutics

For the fiscal year ending December 2024, this company is expected to earn -$0.84 per share, which is a change of 40.9% from the year-ago reported number.

Analysts have been steadily raising their estimates for Applied Therapeutics. Over the past three months, the Zacks Consensus Estimate for the company has increased 18.6%.

Bottom Line

Unlike the overly optimistic Wall Street analysts whose rating systems tend to be weighted toward favorable recommendations, the Zacks rating system maintains an equal proportion of ‘buy’ and ‘sell’ ratings for its entire universe of more than 4000 stocks at any point in time. Irrespective of market conditions, only the top 5% of the Zacks-covered stocks get a ‘Strong Buy’ rating and the next 15% get a ‘Buy’ rating. So, the placement of a stock in the top 20% of the Zacks-covered stocks indicates its superior earnings estimate revision feature, making it a solid candidate for producing market-beating returns in the near term.

The upgrade of Applied Therapeutics to a Zacks Rank #2 positions it in the top 20% of the Zacks-covered stocks in terms of estimate revisions, implying that the stock might move higher in the near term.

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