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Looking for a Growth Stock? 3 Reasons Why Amkor Technology (AMKR) is a Solid Choice

Zacks Equity Research
·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. But finding a growth stock that can live up to its true potential can be a tough task.

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 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.

Amkor Technology (AMKR) 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 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 chip packaging and test services provider 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 Amkor Technology is 12.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 121.4% this year, crushing the industry average, which calls for EPS growth of 16.5%.

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, Amkor Technology has an S/TA ratio of 1, which means that the company gets $1 in sales for each dollar in assets. Comparing this to the industry average of 0.62, it can be said that the company is more efficient.

While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Amkor Technology is well positioned from a sales growth perspective too. The company's sales are expected to grow 22.9% this year versus the industry average of 2.4%.

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 Amkor Technology have been revising upward. The Zacks Consensus Estimate for the current year has surged 24% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Amkor Technology a Zacks Rank #1 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 Amkor Technology well for outperformance, so growth investors may want to bet on it.


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Zacks Investment Research