3 Reasons Growth Investors Will Love American Express (AXP)

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. 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 task of finding cutting-edge growth stocks is made easy 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.

American Express (AXP) is one such stock that our proprietary system currently recommends. The 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 credit card issuer and global payments company is a great growth pick right now, we have highlighted three of the most important factors below:

Earnings Growth

Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. 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 American Express is 10.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 13.9% this year, crushing the industry average, which calls for EPS growth of 12.7%.

Impressive Asset Utilization Ratio

Growth investors often overlook asset utilization ratio, also known as sales-to-total-assets (S/TA) ratio, but it is an important feature of a real growth stock. This metric exhibits how efficiently a firm is utilizing its assets to generate sales.

Right now, American Express has an S/TA ratio of 0.24, which means that the company gets $0.24 in sales for each dollar in assets. Comparing this to the industry average of 0.2, 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 American Express is well positioned from a sales growth perspective too. The company's sales are expected to grow 9.4% this year versus the industry average of 5.8%.

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.

The current-year earnings estimates for American Express have been revising upward. The Zacks Consensus Estimate for the current year has surged 3% over the past month.

Bottom Line

American Express has not only earned a Growth Score of B 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 American Express well for outperformance, so growth investors may want to bet on it.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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