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Quest Diagnostics (DGX) is an Incredible Growth Stock: 3 Reasons Why
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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. 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.
Quest Diagnostics (DGX - Free Report) 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).
Here are three of the most important factors that make the stock of this medical laboratory operator 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 Quest Diagnostics is 22.1%, investors should actually focus on the projected growth. The company's EPS is expected to grow 24.8% this year, crushing the industry average, which calls for EPS growth of 14.6%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Quest Diagnostics has an S/TA ratio of 0.81, which means that the company gets $0.81 in sales for each dollar in assets. Comparing this to the industry average of 0.78, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Quest Diagnostics is well positioned from a sales growth perspective too. The company's sales are expected to grow 11% this year versus the industry average of 10.5%.
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 Quest Diagnostics have been revising upward. The Zacks Consensus Estimate for the current year has surged 0.6% over the past month.
Bottom Line
Quest Diagnostics 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.
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Quest Diagnostics (DGX) is an Incredible Growth Stock: 3 Reasons Why
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. 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.
Quest Diagnostics (DGX - Free Report) 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).
Here are three of the most important factors that make the stock of this medical laboratory operator 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 Quest Diagnostics is 22.1%, investors should actually focus on the projected growth. The company's EPS is expected to grow 24.8% this year, crushing the industry average, which calls for EPS growth of 14.6%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Quest Diagnostics has an S/TA ratio of 0.81, which means that the company gets $0.81 in sales for each dollar in assets. Comparing this to the industry average of 0.78, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Quest Diagnostics is well positioned from a sales growth perspective too. The company's sales are expected to grow 11% this year versus the industry average of 10.5%.
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 Quest Diagnostics have been revising upward. The Zacks Consensus Estimate for the current year has surged 0.6% over the past month.
Bottom Line
Quest Diagnostics 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 Quest Diagnostics well for outperformance, so growth investors may want to bet on it.