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3 Reasons Why Qualys (QLYS) Is a Great Growth Stock

·3 min read

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, 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.

Qualys (QLYS) 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 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 maker of security-analysis software 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 Qualys is 41%, investors should actually focus on the projected growth. The company's EPS is expected to grow 21.7% this year, crushing the industry average, which calls for EPS growth of 17.8%.

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, Qualys has an S/TA ratio of 0.51, which means that the company gets $0.51 in sales for each dollar in assets. Comparing this to the industry average of 0.46, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Qualys looks attractive from a sales growth perspective as well. The company's sales are expected to grow 12.8% this year versus the industry average of 12%.

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 Qualys have been revising upward. The Zacks Consensus Estimate for the current year has surged 7.5% over the past month.

Bottom Line

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


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