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. However, it isn’t easy to find a great growth stock.
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 McKesson (MCK) as one such stock. This company not only has a favorable Growth Score, but also carries a top Zacks Rank.
Research shows that stocks carrying the best growth features 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 the stock of this prescription drug distributor a great growth pick right now.
Earnings Growth
Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. 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 McKesson is 13.2%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 14.4% this year, crushing the industry average, which calls for EPS growth of 7.7%.
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, McKesson has an S/TA ratio of 4.85, which means that the company gets $4.85 in sales for each dollar in assets. Comparing this to the industry average of 0.77, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And McKesson looks attractive from a sales growth perspective as well. The company’s sales are expected to grow 6.3% this year versus the industry average of 3.5%.