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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. 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, 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.
Imperial Oil (IMO - 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).
While there are numerous reasons why the stock of this oil and gas and petroleum products company 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. 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 Imperial Oil is 47.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 347% this year, crushing the industry average, which calls for EPS growth of 248.2%.
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, Imperial Oil has an S/TA ratio of 0.59, which means that the company gets $0.59 in sales for each dollar in assets. Comparing this to the industry average of 0.55, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Imperial Oil is well positioned from a sales growth perspective too. The company's sales are expected to grow 51.8% this year versus the industry average of 25.9%.
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 Imperial Oil. The Zacks Consensus Estimate for the current year has surged 4.7% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Imperial Oil 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.
Image: Bigstock
3 Reasons Why Growth Investors Shouldn't Overlook Imperial Oil (IMO)
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, 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.
Imperial Oil (IMO - 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).
While there are numerous reasons why the stock of this oil and gas and petroleum products company 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. 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 Imperial Oil is 47.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 347% this year, crushing the industry average, which calls for EPS growth of 248.2%.
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, Imperial Oil has an S/TA ratio of 0.59, which means that the company gets $0.59 in sales for each dollar in assets. Comparing this to the industry average of 0.55, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Imperial Oil is well positioned from a sales growth perspective too. The company's sales are expected to grow 51.8% this year versus the industry average of 25.9%.
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 Imperial Oil. The Zacks Consensus Estimate for the current year has surged 4.7% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Imperial Oil 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 Imperial Oil is a potential outperformer and a solid choice for growth investors.