Enphase Energy (ENPH) 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. But finding a great growth stock is not easy at all.
By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company's growth story is over or nearing its end, betting on it could lead to significant loss.
However, the task of finding cutting-edge growth stocks is made easy 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 Enphase Energy (ENPH) as one such stock. This 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).
While there are numerous reasons why the stock of this solar technology company is a great growth pick right now, we have highlighted three of the most important factors below:
Earnings Growth
Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. 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 Enphase Energy is 108.1%, investors should actually focus on the projected growth. The company's EPS is expected to grow 69.7% this year, crushing the industry average, which calls for EPS growth of 24.4%.
Cash Flow Growth
Cash is the lifeblood of any business, but higher-than-average cash flow growth is more beneficial and important for growth-oriented companies than for mature companies. That's because, high cash accumulation enables these companies to undertake new projects without raising expensive outside funds.
Right now, year-over-year cash flow growth for Enphase Energy is 57.4%, which is higher than many of its peers. In fact, the rate compares to the industry average of 15.4%.
While investors should actually consider the current cash flow growth, it's worth taking a look at the historical rate too for putting the current reading into proper perspective. The company's annualized cash flow growth rate has been 48.7% over the past 3-5 years versus the industry average of 13.2%.
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 Enphase Energy have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.7% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Enphase Energy 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 Enphase Energy well for outperformance, so growth investors may want to bet on it.
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Enphase Energy, Inc. (ENPH) : Free Stock Analysis Report
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