3 Reasons Growth Investors Will Love Silicon Motion (SIMO)

You’re reading Entrepreneur United States, an international franchise of Entrepreneur Media.

This story originally appeared on Zacks

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.

– Zacks

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 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.

Silicon Motion (SIMO) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it 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 chip company 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. 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 Silicon Motion is 0.3%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 86.8% this year, crushing the industry average, which calls for EPS growth of 39.1%.

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, Silicon Motion has an S/TA ratio of 0.98, which means that the company gets $0.98 in sales for each dollar in assets. Comparing this to the industry average of 0.68, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Silicon Motion looks attractive from a sales growth perspective as well. The company’s sales are expected to grow 77.6% this year versus the industry average of 14.5%.

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.

The current-year earnings estimates for Silicon Motion have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.9% over the past month.

Bottom Line

Silicon Motion 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 #2 because of the positive earnings estimate revisions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This combination indicates that Silicon Motion is a potential outperformer and a solid choice for growth investors.

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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
 
Silicon Motion Technology Corporation (SIMO): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Schreibe einen Kommentar

Deine E-Mail-Adresse wird nicht veröffentlicht. Erforderliche Felder sind mit * markiert.