Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's attention and deliver solid returns. But finding a great growth stock is not easy at all.
By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company's growth story is over or nearing its end, betting on it could lead to significant loss.
However, it's pretty easy to find cutting-edge growth stocks with the help of 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.
Our proprietary system currently recommends Consolidated-Tomoka (CTO) as one such stock. This company not only has a favorable Growth Score, but also carries a top Zacks Rank.
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 real estate company 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. And for growth investors, double-digi t earnings growth is definitely preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.
While the historical EPS growth rate for Consolidated-Tomoka is 45.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 14.9% this year, crushing the industry average, which calls for EPS growth of 3.4%.
Cash Flow Growth
Cash is the lifeblood of any business, but higher-than-average cash flow growth is more beneficial and important for growth-oriented companies than for mature companies. That's because, high cash accumulation enables these companies to undertake new projects without raising expensive outside funds.
Right now, year-over-year cash flow growth for Consolidated-Tomoka is 18%, which is higher than many of its peers. In fact, the rate compares to the industry average of 12.2%.
While investors should actually consider the current cash flow growth, it's worth taking a look at the historical rate too for putting the current reading into proper perspective. The company's annualized cash flow growth rate has been 45% over the past 3-5 years versus the industry average of 10%.
Promising Earnings Estimate Revisions
Beyond the metrics outlined above, investors should consider the trend in earnings estimate revisions. A positive trend is a plus 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 Consolidated-Tomoka. The Zacks Consensus Estimate for the current year has surged 13.5% over the past month.
Consolidated-Tomoka 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.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
This combination positions Consolidated-Tomoka well for outperformance, so growth investors may want to bet on it.
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