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. However, it isn't easy to find a great growth stock.
That's because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end 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.
Our proprietary system currently recommends Semler Scientific Inc. (
SMLR Quick Quote SMLR - Free Report) 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.
Here are three of the most important factors that make the stock of this company a great growth pick right now.
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 Semler Scientific Inc. is 77.3%, investors should actually focus on the projected growth. The company's EPS is expected to grow 38.5% this year, crushing the industry average, which calls for EPS growth of 28%.
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 shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Semler Scientific Inc. has an S/TA ratio of 1.49, which means that the company gets $1.49 in sales for each dollar in assets. Comparing this to the industry average of 0.51, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Semler Scientific Inc. is well positioned from a sales growth perspective too. The company's sales are expected to grow 50.2% this year versus the industry average of 14.2%.
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 Semler Scientific Inc. have been revising upward. The Zacks Consensus Estimate for the current year has surged 6.2% over the past month.
Semler Scientific Inc. 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 #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 Semler Scientific Inc. well for outperformance, so growth investors may want to bet on it.