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3 Reasons Growth Investors Will Love Farmers & Merchants Bancorp Inc. (FMAO)
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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. But finding a great growth stock is not easy at all.
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, 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.
Farmers & Merchants Bancorp Inc. (FMAO - 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 company a great growth pick right now.
Earnings Growth
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 Farmers & Merchants Bancorp Inc. is 7.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 13% this year, crushing the industry average, which calls for EPS growth of -8.3%.
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 Farmers & Merchants Bancorp Inc. is 13.8%, which is higher than many of its peers. In fact, the rate compares to the industry average of 1.2%.
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 12.7% over the past 3-5 years versus the industry average of 11.9%.
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.
There have been upward revisions in current-year earnings estimates for Farmers & Merchants Bancorp Inc. The Zacks Consensus Estimate for the current year has surged 1.4% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Farmers & Merchants Bancorp Inc. a Zacks Rank #2 stock, it has earned itself a Growth Score of B based on a number of factors, including the ones discussed above.
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3 Reasons Growth Investors Will Love Farmers & Merchants Bancorp Inc. (FMAO)
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. But finding a great growth stock is not easy at all.
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, 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.
Farmers & Merchants Bancorp Inc. (FMAO - 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 company a great growth pick right now.
Earnings Growth
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 Farmers & Merchants Bancorp Inc. is 7.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 13% this year, crushing the industry average, which calls for EPS growth of -8.3%.
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 Farmers & Merchants Bancorp Inc. is 13.8%, which is higher than many of its peers. In fact, the rate compares to the industry average of 1.2%.
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 12.7% over the past 3-5 years versus the industry average of 11.9%.
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.
There have been upward revisions in current-year earnings estimates for Farmers & Merchants Bancorp Inc. The Zacks Consensus Estimate for the current year has surged 1.4% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Farmers & Merchants Bancorp Inc. a Zacks Rank #2 stock, it has earned itself a Growth Score of B 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 positions Farmers & Merchants Bancorp Inc. well for outperformance, so growth investors may want to bet on it.