Growth stocks are attractive to many investors because above-average financial growth helps these stocks easily capture the market’s attention and produce exceptional returns. But finding growth that can live up to its true potential can be a difficult task.
This is because these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually ending or nearing its end could result in a significant loss.
However, it is quite 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.
Paccar (PCAR) is one such stock that our proprietary system currently recommends. The company not only has a favorable Growth Score, but also has a top Zacks Rank.
Research shows that stocks with the best growth characteristics 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).
Here are three of the most important factors that make this truck maker’s stock a great growth pick right now.
Revenue Growth
Earnings growth is probably the most important factor, as stocks exhibiting exceptionally growing profit levels tend to attract the attention of most investors. And for growth investors, double-digit earnings growth is certainly preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.
While the historical EPS growth for Paccar is 12%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 56.2% this year, crushing the industry average that calls for EPS growth of 16%.
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 shows how effectively a company is using its assets to generate sales.
Currently, Paccar has a S/TA ratio of 0.96, which means the company receives $0.96 in sales for every dollar in assets. Comparing this with the industry average of 0.36, it can be said that the company is more efficient.
While the level of efficiency in generating sales is very important, so is the sales growth of a company. And Paccar is well positioned from a sales growth perspective as well. The company’s sales are expected to grow 20.1% this year against the industry average of 0.7%.
Promising Earnings Estimate Revisions
Beyond the metrics described 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 short-term stock prices.
Current year earnings estimates for Paccar have been revised upwards. The Zacks Consensus Estimate for the current year has increased 4.6% over the past month.
Bottom Line
While the overall earnings estimate revisions made Paccar stock a Zacks Rank #2, it earned itself a Growth Score of B based on a number of factors, including those discussed above.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This combination indicates that Paccar is a potential outperformer and a solid choice for growth investors.
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PACCAR Inc. (PCAR): Free Analysis Report
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