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3 Reasons Why Chefs' Warehouse (CHEF) Is a Great Growth Stock
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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.
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 task of finding cutting-edge growth stocks is made easy 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.
Chefs' Warehouse (CHEF - 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 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 distributor of specialty food products is a great growth pick right now, we have highlighted three of the most important factors below:
Earnings Growth
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 Chefs' Warehouse is 31%, investors should actually focus on the projected growth. The company's EPS is expected to grow 1660% this year, crushing the industry average, which calls for EPS growth of 5%.
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 shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Chefs' Warehouse has an S/TA ratio of 1.88, which means that the company gets $1.88 in sales for each dollar in assets. Comparing this to the industry average of 0.87, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Chefs' Warehouse looks attractive from a sales growth perspective as well. The company's sales are expected to grow 27.6% this year versus the industry average of 4.6%.
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 Chefs' Warehouse have been revising upward. The Zacks Consensus Estimate for the current year has surged 7.6% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Chefs' Warehouse 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 Why Chefs' Warehouse (CHEF) Is a Great Growth Stock
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.
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 task of finding cutting-edge growth stocks is made easy 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.
Chefs' Warehouse (CHEF - 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 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 distributor of specialty food products is a great growth pick right now, we have highlighted three of the most important factors below:
Earnings Growth
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 Chefs' Warehouse is 31%, investors should actually focus on the projected growth. The company's EPS is expected to grow 1660% this year, crushing the industry average, which calls for EPS growth of 5%.
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 shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Chefs' Warehouse has an S/TA ratio of 1.88, which means that the company gets $1.88 in sales for each dollar in assets. Comparing this to the industry average of 0.87, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Chefs' Warehouse looks attractive from a sales growth perspective as well. The company's sales are expected to grow 27.6% this year versus the industry average of 4.6%.
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 Chefs' Warehouse have been revising upward. The Zacks Consensus Estimate for the current year has surged 7.6% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Chefs' Warehouse 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 indicates that Chefs' Warehouse is a potential outperformer and a solid choice for growth investors.