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3 Reasons Growth Investors Will Love EOG Resources (EOG)

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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. 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, 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.

Our proprietary system currently recommends EOG Resources (EOG) as one such stock. This 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 oil and gas company is a great growth pick right now, we have highlighted three of the most important factors below:

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. 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 EOG Resources is 26.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 277.1% this year, crushing the industry average, which calls for EPS growth of 139.4%.

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, EOG Resources has an S/TA ratio of 0.28, which means that the company gets $0.28 in sales for each dollar in assets. Comparing this to the industry average of 0.27, 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 EOG Resources looks attractive from a sales growth perspective as well. The company's sales are expected to grow 32% this year versus the industry average of 24.5%.

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 EOG Resources have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.1% over the past month.

Bottom Line

EOG Resources 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 EOG Resources is a potential outperformer and a solid choice for growth investors.


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