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Looking for a Growth Stock? 3 Reasons Why Asbury Automotive (ABG) is a Solid Choice

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Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's attention and deliver solid returns. However, it isn't easy to find a great growth stock.

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, 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.

Asbury Automotive Group (ABG) 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.

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 auto dealership chain is a great growth pick right now, we have highlighted three of the most important factors below:

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 Asbury Automotive is 19.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 30.9% this year, crushing the industry average, which calls for EPS growth of 20.8%.

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, Asbury Automotive has an S/TA ratio of 2.25, which means that the company gets $2.25 in sales for each dollar in assets. Comparing this to the industry average of 1.62, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Asbury Automotive looks attractive from a sales growth perspective as well. The company's sales are expected to grow 27.7% this year versus the industry average of 12.9%.

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 Asbury Automotive. The Zacks Consensus Estimate for the current year has surged 14.6% over the past month.

Bottom Line

Asbury Automotive 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 Asbury Automotive is a potential outperformer and a solid choice for growth investors.


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