This study shows that the recent trajectory of a firm's profits predicts future profitability and stock returns. The … predictive information contained in the trend of profitability is not subsumed by the level of profitability, earnings momentum …, or other well-known determinants of stock returns. The profit trend also predicts the earnings surprise one quarter later …

We provide a novel framework and empirical results to understand the relation between profitability growth and returns …. By connecting a concave profit function to a standard valuation framework, we argue that if growth-rate risk carries a … positive risk premium, firms with higher current profitability growth should earn higher average returns but this effect should …