You’re reading Entrepreneur United States, an international franchise of Entrepreneur Media.
This story originally appeared on Zacks
Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market’s attention and produce exceptional returns. But finding a growth stock that can live up to its true potential can be a tough task.
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, 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.
Recruit Holdings Co., Ltd. (RCRRF) 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.
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 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 Recruit Holdings Co., Ltd. is 16.8%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 116.7% this year, crushing the industry average, which calls for EPS growth of 12.5%.
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, Recruit Holdings Co., Ltd. has an S/TA ratio of 1.18, which means that the company gets $1.18 in sales for each dollar in assets. Comparing this to the industry average of 0.59, it can be said that the company is more efficient.
While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Recruit Holdings Co., Ltd. is well positioned from a sales growth perspective too. The company’s sales are expected to grow 18.9% this year versus the industry average of 9.7%.
Promising Earnings Estimate Revisions
Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable 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 Recruit Holdings Co., Ltd. have been revising upward. The Zacks Consensus Estimate for the current year has surged 8.3% over the past month.
While the overall earnings estimate revisions have made Recruit Holdings Co., Ltd. a Zacks Rank #2 stock, it has earned itself a Growth Score of A based on a number of factors, including the ones discussed above.
This combination positions Recruit Holdings Co., Ltd. well for outperformance, so growth investors may want to bet on it.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.
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
Recruit Holdings Co., Ltd. (RCRRF): Free Stock Analysis Report
To read this article on Zacks.com click here.