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 a great growth stock is by no means easy.
In addition to volatility, these stocks carry above-average risk due to their nature. Also, one could end up losing out on a stock whose growth story is actually ending or nearing its end.
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 traditional growth attributes to analyze a company’s real growth prospects.
Our proprietary system currently recommends Sysco (SYY) as one such stock. This company not only has a favorable Growth Score, but also has the highest Zacks Rank.
Studies have shown that stocks with the best growth characteristics 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 this food distributor’s stock a great growth pick right now.
Revenue Growth
Probably nothing is more important than earnings growth, because increasing profit levels are what most investors are looking for. 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 Sysco is 5.1%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 8% this year, crushing the industry average, which calls for EPS growth of 6.5%.
Impressive Asset Utilization Ratio
Growth investors often overlook asset utilization ratio, also known as sales-to-total-assets (S/TA), but it is an important characteristic of a real growth stock. This metric shows how effectively a company is using its assets to generate sales.
Right now, Sysco has a S/TA ratio of 3.38, which means the company gets $3.38 in sales for every dollar in assets. Comparing this with the industry average of 0.94, 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 Sysco looks attractive from a sales growth perspective as well. The company’s sales are expected to grow 4.1% this year against the industry average of 0%.
Promising Earnings Estimate Revisions
A stock’s superiority according to the metrics described above can be further confirmed 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 short-term stock prices.
The current year estimates for Sysco have been revised upwards. The Zacks Consensus Estimate for the current year has increased 1% over the past month.
Bottom Line
While the overall earnings estimate revisions made Sysco a Zacks Rank #2 stock, 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 Sysco is a potential outperformer and a solid choice for growth investors.
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Sysco Corporation (SYY): Free Analysis Report
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