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.
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.
Kulicke and Soffa (KLIC) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it 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 semiconductor equipment maker is a great growth pick right now, we have highlighted three of the most important factors below:
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 Kulicke and Soffa is 1.7%, investors should actually focus on the projected growth. The company's EPS is expected to grow 244.7% this year, crushing the industry average, which calls for EPS growth of 35.1%.
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, Kulicke and Soffa has an S/TA ratio of 0.68, which means that the company gets $0.68 in sales for each dollar in assets. Comparing this to the industry average of 0.65, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Kulicke and Soffa looks attractive from a sales growth perspective as well. The company's sales are expected to grow 78.1% this year versus the industry average of 16.1%.
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.
The current-year earnings estimates for Kulicke and Soffa have been revising upward. The Zacks Consensus Estimate for the current year has surged 30.8% over the past month.
Kulicke and Soffa 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 #1 because of the positive earnings estimate revisions.
This combination indicates that Kulicke and Soffa is a potential outperformer and a solid choice for growth investors.
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Kulicke and Soffa Industries, Inc. (KLIC): Free Stock Analysis Report
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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.