Investors are always on the hunt for growth stocks, those promising above-average returns by capitalizing on strong financial performance. But finding a truly great growth stock can be a challenge, as these stocks often come with higher risk and volatility. Picking a stock where the growth story is already over or nearing its end can lead to significant losses. However, the Zacks Growth Style Score offers a helpful tool to identify cutting-edge growth stocks. This system goes beyond traditional metrics to evaluate a company’s real growth potential. Axalta Coating Systems (AXTA) is one such stock currently recommended by Zacks. Not only does AXTA boast a favorable Growth Score, but it also holds a top Zacks Rank. Research consistently shows that stocks with strong growth characteristics outperform the market. Moreover, stocks with a Growth Score of A or B combined with a Zacks Rank of #1 (Strong Buy) or #2 (Buy) often deliver even greater returns.
Several factors make Axalta Coating Systems an attractive growth pick, but here are three key highlights:
1. Earnings Growth:
Earnings growth is a crucial indicator for investors, as surging profits are what they ultimately seek. For growth investors, double-digit earnings growth is particularly appealing, as it signals strong prospects for the company and its stock price. While Axalta Coating Systems’ historical EPS growth rate is 1.3%, investors should look at the projected growth. The company’s EPS is expected to grow by a remarkable 31.5% this year, far exceeding the industry average of 13.7%. This robust growth potential suggests a positive outlook for the company.
2. Impressive Asset Utilization Ratio:
The asset utilization ratio, also known as the sales-to-total-assets (S/TA) ratio, is often overlooked but plays a vital role in growth investing. This metric reveals how effectively a company uses its assets to generate sales. Axalta Coating Systems currently has an S/TA ratio of 0.73, meaning that for every dollar in assets, the company generates $0.73 in sales. This is higher than the industry average of 0.7, indicating that the company is more efficient in its operations. Beyond efficiency, sales growth is equally important, and Axalta Coating Systems also shines in this area. The company’s sales are projected to grow by 2.2% this year, surpassing the industry average of 0.7%.
3. Promising Earnings Estimate Revisions:
Beyond the metrics discussed above, investors should pay attention to the trend in earnings estimate revisions. A positive trend signals bullish sentiment. Empirical research demonstrates a strong correlation between earnings estimate revisions and near-term stock price movements. There have been upward revisions in current-year earnings estimates for Axalta Coating Systems. The Zacks Consensus Estimate for the current year has risen by 0.2% in the past month.
Bottom Line:
Axalta Coating Systems has earned a Growth Score of B based on its strong performance across various factors, including those outlined above. Furthermore, its Zacks Rank of #2, driven by positive earnings estimate revisions, further reinforces its potential for outperformance. This combination makes Axalta Coating Systems a compelling choice for growth investors looking for promising opportunities in the market.
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