Growth <a href="https://bitcomme.com/investors-break-down-how-founders-can-raise-a-series-a-today/” title=”Investors break down how founders can raise a Series A today”>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. But finding a growth stock that can live up to its true potential can be a tough task.
However, 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, makes it pretty easy to find cutting-edge growth stocks.
Shopify (SHOP) is one such stock that our proprietary system currently recommends. The 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 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 cloud-based commerce company is a great growth pick right now, we have highlighted three of the most important factors below:
Earnings Growth
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 Shopify is 41.4%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 61.9% this year, crushing the industry average, which calls for EPS growth of 21.3%.
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 shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Shopify has an S/TA ratio of 0.9, which means that the company gets $0.9 in sales for each dollar in assets. Comparing this to the industry average of 0.75, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Shopify looks attractive from a sales growth perspective as well. The company’s sales are expected to grow 31.5% this year versus the industry average of 0%.
