Look for Accelerating Quarterly Earnings Growth:

what is crucial is not just that earnings are up or that a certain price-to-earnings ratio  exists; it is the change and improvement from the stock's prior percentage rate of earning increases that causes a supreme price surge.

If a Company's earnings are up 15% a year and suddenly begin spurting 40% to 50% a year, it usually creates the basic conditions for important stock price improvement.

To say the security is undervalued just because it is selling at a certain price-earnings ratio or because it is in the low range of its historical P/E ratio is  usually nonsense unless primary consideration has first been given to whether the momentum and rate of change in earnings is substantially increasing or decreasing.

(Perhaps this partially explains who so few public or institutional
investors, such as banks and insurance companies, make worthwhile
money following the buy-and-sell recommendations of most securities analysts.)

Check the Stability of a Company's Five-Year

Earnings Record:

While the percentage rate of increase in earnings is most important, an additional factor of value, is the stability and consistency of the past five years' earnings.

All other things being equal, you may want to choose the security showing a greater degree of consistency and stability in past earnings growth.

Are Price-Earnings Ratios Important?

How important is it in selecting stocks?

Prepare yourself for a bubble-bursting surprise.

P/E ratios have been used for years by analysts as their basic measurement tool in deciding if a stock is undervalued (has a low P/E) and should be bought or is overvalued (has a high P/E) and should be sold.

Factual analysis of each cycle's winning stocks shows that P/E ratios have very little to do with whether a stock should be bought or not. A stock's P/E ratio is not normally an important cause of the most successful stock moves. Our model book studies proved the percentage increase in earnings per share was substantially more crucial than the P/E ratio as a cause of impressive stock performance.