Back to top

Image: Bigstock

3 Reasons Why Churchill Downs (CHDN) Is a Great Growth Stock

Read MoreHide Full Article

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 great growth stock is not easy at all.

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.

Our proprietary system currently recommends Churchill Downs (CHDN - 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 racetrack operator and gambling company a great growth pick right now.

Earnings Growth

Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. 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 Churchill Downs is 1.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 684.7% this year, crushing the industry average, which calls for EPS growth of 61%.

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, Churchill Downs has an S/TA ratio of 0.53, which means that the company gets $0.53 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 Churchill Downs is well positioned from a sales growth perspective too. The company's sales are expected to grow 51.4% this year versus the industry average of 25.6%.

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.

The current-year earnings estimates for Churchill Downs have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.1% over the past month.

Bottom Line

Churchill Downs has not only earned a Growth Score of B 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 positions Churchill Downs well for outperformance, so growth investors may want to bet on it.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Churchill Downs, Incorporated (CHDN) - free report >>

Published in