Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market’s attention and produce exceptional returns. However, it isn’t easy to find a great growth stock.
That’s because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.
However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company’s real growth prospects, makes it pretty easy to find cutting-edge growth stocks.
Research shows that stocks carrying the best growth features consistently beat the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.
While there are numerous reasons why the stock of this energy-related services provider is a great growth pick right now, we have highlighted three of the most important factors below:
Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.
While the historical EPS growth rate for Energy Transfer LP is 3.1%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 988.9% this year, crushing the industry average, which calls for EPS growth of 14.9%.
Impressive Asset Utilization Ratio
Asset utilization ratio — also known as sales-to-total-assets (S/TA) ratio — is often overlooked by investors, but it is an important indicator in growth investing. This metric shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Energy Transfer LP has an S/TA ratio of 0.46, which means that the company gets $0.46 in sales for each dollar in assets. Comparing this to the industry average of 0.33, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Energy Transfer LP looks attractive from a sales growth perspective as well. The company’s sales are expected to grow 59.1% this year versus the industry average of 15.5%.
Promising Earnings Estimate Revisions
Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
There have been upward revisions in current-year earnings estimates for Energy Transfer LP. The Zacks Consensus Estimate for the current year has surged 0.2% over the past month.
Energy Transfer LP has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 because of the positive earnings estimate revisions.
This combination positions Energy Transfer LP well for outperformance, so growth investors may want to bet on it.