Investors look for growth stocks to take advantage of above-average growth in the financial sector which helps these securities capture market attention and deliver exceptional returns. However, finding a great growth stock is not easy.Thank you for reading this post, don't forget to subscribe!
In addition to volatility, these stocks by their nature have above average risk. Additionally, one may suffer losses from a stock whose growth story has actually ended or is nearing its end.
However, the task of finding cutting-edge growth stocks is made easier with the help of the Zacks Growth Style Score (part of the Zacks Style Score system), which looks beyond traditional growth characteristics to analyze a company’s true growth prospects.
Amazon (AMZN) is a stock that our ownership system currently recommends. The company not only has a favorable Growth Score, but also a top Zacks Rank.
Research shows that stocks with the best growth characteristics consistently outperform the market. And returns are even better for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Here are the three most important factors that make this online retailer’s stock a great growth option right now.
increase in earnings
Earnings growth is arguably the most important factor, as stocks demonstrating exceptionally growing profit levels attract the attention of most investors. And for growth investors, double-digit earnings growth is certainly preferable, and is often a sign of strong prospects (and stock price gains) for the company in question.
While the historical EPS growth rate for Amazon is 9.9%, investors should really focus on projected growth. The company’s EPS are expected to grow 214.5% this year, which would shatter the industry average, which calls for EPS growth of 40.7%.
effective asset utilization ratio
Growth investors often overlook the asset utilization ratio, also known as the sales-to-total-assets (S/TA) ratio, but it is an important characteristic of true growth stocks. This metric shows how efficiently a company is using its assets to generate sales.
Right now, Amazon’s S/TA ratio is 1.17, which means the company gets $1.17 in sales for every dollar in assets. Comparing this with the industry average of 0.77, it can be said that the company is more efficient.
While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Amazon is also in a good position from a sales growth perspective. The company’s sales are expected to grow 11% this year while the industry average is 0%.
promising earnings estimate revisions
A stock’s superiority in terms of the metrics mentioned above can be further validated by looking at the trend of earnings estimate revisions. A positive trend here is definitely favourable. Empirical research shows that there is a strong correlation between earnings estimate revision trends and near-term stock price movements.
Current year earnings estimates for Amazon have been raised. The Zacks Consensus Estimate for the current year has increased 0.1% from the past month.
Amazon has not only earned a Growth Score of A based on several factors, including those discussed above, but has also earned a Zacks Rank #2 due to positive earnings estimate revisions.
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This combination puts Amazon well positioned for outperformance, so growth investors may want to bet on it.
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
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