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3 Reasons Why RCM Technologies, Inc. (RCMT) 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, 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.

Our proprietary system currently recommends RCM Technologies, Inc. (RCMT) 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.

Here are three of the most important factors that make the stock of this 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. 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 RCM Technologies, Inc. is 2.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 224.6% this year, crushing the industry average, which calls for EPS growth of 17.8%.

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, RCM Technologies, Inc. has an S/TA ratio of 3.56, which means that the company gets $3.56 in sales for each dollar in assets. Comparing this to the industry average of 2.06, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And RCM Technologies, Inc. is well positioned from a sales growth perspective too. The company's sales are expected to grow 45.9% this year versus the industry average of 7.4%.

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.

The current-year earnings estimates for RCM Technologies, Inc. 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 RCM Technologies, Inc. a Zacks Rank #2 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 RCM Technologies, Inc. well for outperformance, so growth investors may want to bet on it.


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