Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a great growth stock is not easy at all.
In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.
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.
Sterling Construction (STRL) 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.
Studies have shown that stocks with the best growth features consistently outperform the market. And returns are even better for stocks that possess the combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy).
While there are numerous reasons why the stock of this civil construction 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. 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 Sterling Construction is 60.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 66.1% this year, crushing the industry average, which calls for EPS growth of 5.6%.
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, Sterling Construction has an S/TA ratio of 1.54, which means that the company gets $1.54 in sales for each dollar in assets. Comparing this to the industry average of 1.29, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Sterling Construction is well positioned from a sales growth perspective too. The company's sales are expected to grow 27% this year versus the industry average of 0%.
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 Sterling Construction. The Zacks Consensus Estimate for the current year has surged 25.6% over the past month.
Sterling Construction 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 positions Sterling Construction well for outperformance, so growth investors may want to bet on it.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Sterling Construction Company Inc (STRL): Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.