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Looking for a Growth Stock? 3 Reasons Why Louisiana-Pacific (LPX) is a Solid Choice

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Investors seek growth stocks to capitalize on above-average growth in financials that help these securities 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, 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.

Our proprietary system currently recommends Louisiana-Pacific (LPX) 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 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.

While there are numerous reasons why the stock of this home construction supplier 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 Louisiana-Pacific is 22.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 194.7% this year, crushing the industry average, which calls for EPS growth of 62.7%.

Cash Flow Growth

While cash is the lifeblood of any business, higher-than-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. That's because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds.

Right now, year-over-year cash flow growth for Louisiana-Pacific is 253%, which is higher than many of its peers. In fact, the rate compares to the industry average of 29.1%.

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 60.4% over the past 3-5 years versus the industry average of 23.3%.

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 Louisiana-Pacific have been revising upward. The Zacks Consensus Estimate for the current year has surged 22.8% over the past month.

Bottom Line

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


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