We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Reasons Why Plains All American (PAA) Is a Great Growth Stock
Read MoreHide Full Article
Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's attention and deliver solid 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, 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.
Plains All American Pipeline (PAA - 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 oil and gas transportation and storage 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 Plains All American is 1.4%, investors should actually focus on the projected growth. The company's EPS is expected to grow 15.8% this year, crushing the industry average, which calls for EPS growth of 12.3%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Plains All American has an S/TA ratio of 1.74, which means that the company gets $1.74 in sales for each dollar in assets. Comparing this to the industry average of 0.66, it can be said that the company is more efficient.
While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Plains All American looks attractive from a sales growth perspective as well. The company's sales are expected to grow 31.5% this year versus the industry average of 24.3%.
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 Plains All American. The Zacks Consensus Estimate for the current year has surged 14.8% over the past month.
Bottom Line
Plains All American has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 because of the positive earnings estimate revisions.
Image: Bigstock
3 Reasons Why Plains All American (PAA) Is a Great Growth Stock
Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's attention and deliver solid 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, 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.
Plains All American Pipeline (PAA - 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 oil and gas transportation and storage 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 Plains All American is 1.4%, investors should actually focus on the projected growth. The company's EPS is expected to grow 15.8% this year, crushing the industry average, which calls for EPS growth of 12.3%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Plains All American has an S/TA ratio of 1.74, which means that the company gets $1.74 in sales for each dollar in assets. Comparing this to the industry average of 0.66, it can be said that the company is more efficient.
While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Plains All American looks attractive from a sales growth perspective as well. The company's sales are expected to grow 31.5% this year versus the industry average of 24.3%.
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 Plains All American. The Zacks Consensus Estimate for the current year has surged 14.8% over the past month.
Bottom Line
Plains All American has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 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 indicates that Plains All American is a potential outperformer and a solid choice for growth investors.