Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market's attention and produce exceptional returns. But finding a growth stock that can live up to its true potential can be a tough task.
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, 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.
OLN Quick Quote OLN - 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 chlor-alkali and ammunition producer'a great growth pick right now.
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 Olin is 2.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 473.2% this year, crushing the industry average, which calls for EPS growth of 41.3%.
Cash Flow Growth
Cash is the lifeblood of any business, but higher-than-average cash flow growth is more beneficial and important for growth-oriented companies than for mature companies. That's because, high cash accumulation enables these companies to undertake new projects without raising expensive outside funds.
Right now, year-over-year cash flow growth for Olin is 51.6%, which is higher than many of its peers. In fact, the rate compares to the industry average of -9.9%.
While investors should actually consider the current cash flow growth, it's worth taking a look at the historical rate too for putting the current reading into proper perspective. The company's annualized cash flow growth rate has been 27% over the past 3-5 years versus the industry average of 0.4%.
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 Olin have been revising upward. The Zacks Consensus Estimate for the current year has surged 28.4% over the past month.
While the overall earnings estimate revisions have made Olin 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 Olin is a potential outperformer and a solid choice for growth investors.