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Schnitzer Steel (SCHN) is an Incredible Growth Stock: 3 Reasons Why

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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 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 Schnitzer Steel as one such stock. This company not only has a favorable Growth Score, but also 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 recycler of ferrous and nonferrous scrap metal is a great growth pick right now, we have highlighted three of the most important factors below:

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. And for growth investors, double-digit earnings growth is definitely preferable, and often 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 597.7% this year, crushing the industry average, which calls for EPS growth of 131.9%.

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, 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 18.7%.

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 Schnitzer Steel. The Zacks Consensus Estimate for the current year has surged 60% over the past month.

Bottom Line

Schnitzer Steel 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.

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.

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