What is Earnings Momentum?

Earnings momentum is an indicator that is computed by not just looking at the earnings performance and estimations of a company, but looking at the positive or negative direction of earnings and the acceleration in that direction.

Momentum in securities is much like momentum in physics. Where there is momentum, it is hard to slow things down and charge direction. Instead of looking only at the growth of earnings, which could be the slope of the inclining line, momentum also looks for increases in change to the growth rate, making earnings growth more parabolic or exponential.

Earnings growth is the simple year over year earnings, expressed as an average rate over the recent years. Momentum and accelerating slope are about having exponential moving averages which snap the chart data to the most recent information and give it a bias toward the most recent information.

Momentum is not just the rate of change, it’s the rate of change of the rate of change.