Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market’s attention and produce exceptional 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 Earthstone Energy (ESTE) 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 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 oil and gas company a great growth pick right now.
Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. 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 Earthstone Energy is 0.6%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 171.6% this year, crushing the industry average, which calls for EPS growth of 164.5%.
Cash Flow Growth
While cash is the lifeblood of any business, higher-than-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. That’s because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds.
Right now, year-over-year cash flow growth for Earthstone Energy is 47.3%, which is higher than many of its peers. In fact, the rate compares to the industry average of 31.3%.
While investors should actually consider the current cash flow growth, it’s worth taking a look at the historical rate too for putting the current reading into proper perspective. The company’s annualized cash flow growth rate has been 49.6% over the past 3-5 years versus the industry average of 15.6%.
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 Earthstone Energy. The Zacks Consensus Estimate for the current year has surged 21.3% over the past month.
Earthstone Energy has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #1 because of the positive earnings estimate revisions.
This combination positions Earthstone Energy well for outperformance, so growth investors may want to bet on it.
Special Report: The Top 5 IPOs for Your Portfolio
Today, you have a chance to get in on the ground floor of one of the best investment opportunities of the year. As the world continues to benefit from an ever-evolving internet, a handful of innovative tech companies are on the brink of reaping immense rewards – and you can put yourself in a position to cash in. One is set to disrupt the online communication industry. Brilliantly designed for creating online communities, this stock is poised to explode when made public. With the strength of our economy and record amounts of cash flooding into IPOs, you don’t want to miss this opportunity.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report