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. But finding a growth stock that can live up to its true potential can be a tough task.
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 JD.com, Inc. (JD) as one such stock. This company not only has a favorable Growth Score, but also 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 company a great growth pick right now.
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 JD.com, Inc. is 101%, investors should actually focus on the projected growth. The company's EPS is expected to grow 26.9% this year, crushing the industry average, which calls for EPS growth of 0.9%.
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, JD.com, Inc. has an S/TA ratio of 1.96, which means that the company gets $1.96 in sales for each dollar in assets. Comparing this to the industry average of 0.7, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And JD.com, Inc. looks attractive from a sales growth perspective as well. The company's sales are expected to grow 6.8% this year versus the industry average of 2.5%.
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 JD.com, Inc. have been revising upward. The Zacks Consensus Estimate for the current year has surged 25% over the past month.
JD.com, Inc. has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #1 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 JD.com, Inc. is a potential outperformer and a solid choice for growth investors.
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