Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's…
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 growth stock that can live up to its true potential can be a tough task.
By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company’s growth story is over or nearing its end, betting on it 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.
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 Omnicell Inc. 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. 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 Omnicell is 74.8%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 48.2% this year, crushing the industry average, which calls for EPS growth of 16.4%.
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 efficiently a firm is utilizing its assets to generate sales.
Right now, Omnicell has an S/TA ratio of 0.55, which means that the company gets $0.55 in sales for each dollar in assets. Comparing this to the industry average of 0.4, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Omnicell looks attractive from a sales growth perspective as well. The company’s sales are expected to grow 26.8% this year versus the industry average of 25.5%.
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.
There have been upward revisions in current-year earnings estimates for Omnicell. The Zacks Consensus Estimate for the current year has surged 3.2% over the past month.
While the overall earnings estimate revisions have made Omnicell 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.
This combination positions Omnicell well for outperformance, so growth investors may want to bet on it.