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 growth stock that can live up to its true potential can be a tough task.
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 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.
Inter Parfums (
IPAR Quick Quote IPAR - 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.
Here are three of the most important factors that make the stock of this perfume maker a great growth pick right now.
Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. 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 Inter Parfums is 10.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 10.9% this year, crushing the industry average, which calls for EPS growth of 8.8%.
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 Inter Parfums is 111.7%, which is higher than many of its peers. In fact, the rate compares to the industry average of 9.1%.
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 14.6% over the past 3-5 years versus the industry average of 7.7%.
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.
There have been upward revisions in current-year earnings estimates for Inter Parfums. The Zacks Consensus Estimate for the current year has surged 1.7% over the past month.
While the overall earnings estimate revisions have made Inter Parfums 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 Inter Parfums is a potential outperformer and a solid choice for growth investors.