Strong earnings growth

Since we last looked at Questcor in early March, the general market direction has shifted, the company has reported earnings, and we've enhanced the data included in the IBD 50, so today we'll see how those all tie together.

• The company reported Q1 results on Tuesday, soundly beating estimates and scoring triple digit gains for both sales and earnings.
• Sales growth accelerated for the 5th straight quarter, and marked a second straight quarter of triple digit increases.
• While earnings growth did not accelerate, it was still very strong at 205%.
• In addition to now being updated in both the Monday and Wednesday editions, the IBD 50 also now includes the average EPS growth rate over the last 3 quarters for each stock. That's because the best stocks tend to have several quarters of strong earnings growth before they launch a big run, and this new feature will help you quickly spot stocks showing that kind of performance.
• After reporting its latest numbers, Questcor's average EPS growth rate over the last 3 quarters now stands at 197%.
• Going forward, analysts see earnings rising 91% this year, followed by a 38% increase in 2013.
• The company's return on equity is a very strong 49%.
• In terms of overall fundamental and technical strength, Questcor scores the highest possible 99 Composite Rating.
• Its Accumulation/Distribution Rating is a B, but that's down from the B+ it had before it reported earnings. Keep a close eye on that to see if institutional investors start to do more selling than buying.

Chart Analysis

• Questcor made a big move over the last 2 years. That's something to keep in mind, since even the best stocks don't go up forever.
• And although a new uptrend in the general market began on December 20 of last year (Point 1), Questcor sat out the first two months of that run, as it sold off and began forming its current base.
• It found a bottom in mid-February (Point 2) and since then has been building the right side of a cup-shaped pattern.
• When analyzing a base, you want to look at more than just the shape.
• When analyzing a base, you want to look at more than just the shape. Also check the price and volume action for each week within the pattern.
• Compare the number of UP weeks on heavy volume, with the number of DOWN weeks on heavy volume. In Questcor's case, heavy-volume down weeks outnumber the UP weeks. You'd prefer to see the opposite.
• Also note that the relative strength line has been trending higher overall, but is still well below its old high (Point 3). Ideally, you'd see the RS line move into new high territory as the stock nears a potential buy point.
• On Wednesday — the day after it reported earnings — Questcor pulled back on heavy volume and dipped below its 10-week line (Point 4). It managed to bounce back, but that's something you want to keep a close eye on in the coming days.
• One day doesn't necessarily determine a new trend. And when a stock is testing its 10-week or 50-day moving average line, it's important to watch where the stock CLOSES for the week. Does it close above that benchmark line? Or does it close below it on heavy volume.