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. But finding a growth stock that can live up to its true potential can be a tough task.
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.
Schnitzer Steel (
SCHN Quick Quote SCHN - Free Report) 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 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 recycler of ferrous and nonferrous scrap metal a great growth pick right now.
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 Schnitzer Steel is 4.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 440.7% this year, crushing the industry average, which calls for EPS growth of 122%.
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, Schnitzer Steel has an S/TA ratio of 1.39, which means that the company gets $1.39 in sales for each dollar in assets. Comparing this to the industry average of 0.89, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Schnitzer Steel looks attractive from a sales growth perspective as well. The company's sales are expected to grow 42.9% this year versus the industry average of 10.1%.
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.
There have been upward revisions in current-year earnings estimates for Schnitzer Steel. The Zacks Consensus Estimate for the current year has surged 47.6% over the past month.
While the overall earnings estimate revisions have made Schnitzer Steel a Zacks Rank #1 stock, it has earned itself a Growth Score of A based on a number of factors, including the ones discussed above.
You can see
the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
This combination indicates that Schnitzer Steel is a potential outperformer and a solid choice for growth investors.