Clean Harbors (CLH) is an Incredible Growth Stock: 3 Reasons Why
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, 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.
Clean Harbors (CLH) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it 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 environmental services company a great growth pick right now.
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 Clean Harbors is 69%, investors should actually focus on the projected growth. The company's EPS is expected to grow 99.5% this year, crushing the industry average, which calls for EPS growth of 16.7%.
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 shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Clean Harbors has an S/TA ratio of 0.86, which means that the company gets $0.86 in sales for each dollar in assets. Comparing this to the industry average of 0.58, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Clean Harbors is well positioned from a sales growth perspective too. The company's sales are expected to grow 35% this year versus the industry average of 10.3%.
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 Clean Harbors. The Zacks Consensus Estimate for the current year has surged 4.7% over the past month.
Clean Harbors has not only earned a Growth Score of B 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 Clean Harbors is a potential outperformer and a solid choice for growth investors.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Clean Harbors, Inc. (CLH) : Free Stock Analysis Report
To read this article on Zacks.com click here.