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3 Reasons Why Growth Investors Shouldn't Overlook Asbury Automotive (ABG)

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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.

That's because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.

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.

Asbury Automotive Group (ABG) 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 auto dealership chain 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. 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 Asbury Automotive is 23.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 76.7% this year, crushing the industry average, which calls for EPS growth of 68.1%.

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 exhibits how efficiently a firm is utilizing its assets to generate sales.

Right now, Asbury Automotive has an S/TA ratio of 2.47, which means that the company gets $2.47 in sales for each dollar in assets. Comparing this to the industry average of 1.86, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Asbury Automotive is well positioned from a sales growth perspective too. The company's sales are expected to grow 34.6% this year versus the industry average of 22.1%.

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.

There have been upward revisions in current-year earnings estimates for Asbury Automotive. The Zacks Consensus Estimate for the current year has surged 30.3% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Asbury Automotive 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 positions Asbury Automotive well for outperformance, so growth investors may want to bet on it.


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