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. 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.
HUM Quick Quote HUM - 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 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.
While there are numerous reasons why the stock of this health insurer is a great growth pick right now, we have highlighted three of the most important factors below:
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 Humana is 15.3%, investors should actually focus on the projected growth. The company's EPS is expected to grow 16.8% this year, crushing the industry average, which calls for EPS growth of 11.8%.
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, Humana has an S/TA ratio of 2.01, which means that the company gets $2.01 in sales for each dollar in assets. Comparing this to the industry average of 1.4, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Humana is well positioned from a sales growth perspective too. The company's sales are expected to grow 11.5% this year versus the industry average of 11%.
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 Humana have been revising upward. The Zacks Consensus Estimate for the current year has surged 0.1% over the past month.
While the overall earnings estimate revisions have made Humana 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 Humana well for outperformance, so growth investors may want to bet on it.