Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. However, it isn't easy to find a great growth stock.
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.
Our proprietary system currently recommends Icon PLC (
ICLR Quick Quote ICLR - Free Report) as one such stock. This 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 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 contract research organization 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 Icon PLC is 10%, investors should actually focus on the projected growth. The company's EPS is expected to grow 40.3% this year, crushing the industry average, which calls for EPS growth of 30.3%.
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, Icon PLC has an S/TA ratio of 0.92, which means that the company gets $0.92 in sales for each dollar in assets. Comparing this to the industry average of 0.58, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Icon PLC is well positioned from a sales growth perspective too. The company's sales are expected to grow 92.1% this year versus the industry average of 14.7%.
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.
The current-year earnings estimates for Icon PLC have been revising upward. The Zacks Consensus Estimate for the current year has surged 6.9% over the past month.
Icon PLC 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 indicates that Icon PLC is a potential outperformer and a solid choice for growth investors.