Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market’s attention and produce exceptional returns. But finding a great growth stock is not easy at all.
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 Phillips 66 (PSX) 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.
While there are numerous reasons why the stock of this oil refiner is a great growth pick right now, we have highlighted three of the most important factors below:
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 Phillips 66 is 3%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 546.9% this year, crushing the industry average, which calls for EPS growth of 61%.
Impressive Asset Utilization Ratio
Growth investors often overlook asset utilization ratio, also known as sales-to-total-assets (S/TA) ratio, but it is an important feature of a real growth stock. This metric exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Phillips 66 has an S/TA ratio of 1.75, which means that the company gets $1.75 in sales for each dollar in assets. Comparing this to the industry average of 1.58, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Phillips 66 looks attractive from a sales growth perspective as well. The company’s sales are expected to grow 58.6% this year versus the industry average of 55%.
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 Phillips 66 have been revising upward. The Zacks Consensus Estimate for the current year has surged 48.7% over the past month.
While the overall earnings estimate revisions have made Phillips 66 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.
This combination indicates that Phillips 66 is a potential outperformer and a solid choice for growth investors.
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