Back to top

Image: Bigstock

3 Reasons Why Growth Investors Shouldn't Overlook Arkema SA (ARKAY)

Read MoreHide Full Article

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. But finding a growth stock that can live up to its true potential can be a tough task.

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, 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.

Our proprietary system currently recommends Arkema SA (ARKAY - Free Report) as one such stock. This 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 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.

Here are three of the most important factors that make the stock of this company a great growth pick right now.

Earnings Growth

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 Arkema SA is 2.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 46.2% this year, crushing the industry average, which calls for EPS growth of 42.7%.

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, Arkema SA has an S/TA ratio of 0.75, which means that the company gets $0.75 in sales for each dollar in assets. Comparing this to the industry average of 0.73, 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 Arkema SA is well positioned from a sales growth perspective too. The company's sales are expected to grow 11.3% this year versus the industry average of 11%.

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 Arkema SA have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.3% over the past month.

Bottom Line

Arkema SA 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 Arkema SA well for outperformance, so growth investors may want to bet on it.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Arkema SA (ARKAY) - free report >>

Published in