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SQM (SQM) is an Incredible Growth Stock: 3 Reasons Why

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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.

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.

SQM (SQM - 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.

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.

Here are three of the most important factors that make the stock of this chemicals company a great growth pick right now.

Earnings Growth

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 SQM is 22.3%, investors should actually focus on the projected growth. The company's EPS is expected to grow 540.2% this year, crushing the industry average, which calls for EPS growth of 132.4%.

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, SQM has an S/TA ratio of 0.99, which means that the company gets $0.99 in sales for each dollar in assets. Comparing this to the industry average of 0.76, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And SQM looks attractive from a sales growth perspective as well. The company's sales are expected to grow 275% this year versus the industry average of 36.6%.

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 SQM have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.5% over the past month.

Bottom Line

While the overall earnings estimate revisions have made SQM a Zacks Rank #1 stock, it has earned itself a Growth Score of A 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 SQM is a potential outperformer and a solid choice for growth investors.


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