U.S. markets closed
  • S&P Futures

    4,260.00
    +4.00 (+0.09%)
     
  • Dow Futures

    34,210.00
    +128.00 (+0.38%)
     
  • Nasdaq Futures

    14,348.25
    -6.00 (-0.04%)
     
  • Russell 2000 Futures

    2,333.50
    +2.30 (+0.10%)
     
  • Crude Oil

    73.39
    +0.09 (+0.12%)
     
  • Gold

    1,778.60
    +1.90 (+0.11%)
     
  • Silver

    26.13
    +0.08 (+0.31%)
     
  • EUR/USD

    1.1947
    +0.0013 (+0.11%)
     
  • 10-Yr Bond

    1.4870
    0.0000 (0.00%)
     
  • Vix

    15.97
    -0.35 (-2.14%)
     
  • GBP/USD

    1.3934
    +0.0013 (+0.09%)
     
  • USD/JPY

    110.8510
    +0.0160 (+0.01%)
     
  • BTC-USD

    35,209.53
    +2,671.46 (+8.21%)
     
  • CMC Crypto 200

    848.27
    +61.65 (+7.84%)
     
  • FTSE 100

    7,109.97
    +35.91 (+0.51%)
     
  • Nikkei 225

    29,077.09
    +201.86 (+0.70%)
     

Looking for a Growth Stock? 3 Reasons Why Catalent (CTLT) is a Solid Choice

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

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.

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, 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.

Catalent (CTLT) is one such stock that our proprietary system currently recommends. The 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 maker of drug delivery technologies 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. 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 Catalent is 9.8%, investors should actually focus on the projected growth. The company's EPS is expected to grow 21.6% this year, crushing the industry average, which calls for EPS growth of 18.9%.

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 Catalent is 20.5%, which is higher than many of its peers. In fact, the rate compares to the industry average of 3.9%.

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 10.4% over the past 3-5 years versus the industry average of 5.6%.

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 Catalent have been revising upward. The Zacks Consensus Estimate for the current year has surged 1% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Catalent a Zacks Rank #2 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 Catalent well for outperformance, so growth investors may want to bet on it.


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
 
Catalent, Inc. (CTLT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research