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Here is Why Growth Investors Should Buy STMicroelectronics (STM) Now
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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. But finding a great growth stock is not easy at all.
In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.
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.
STMicroelectronics (STM - Free Report) 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.
Studies have shown that stocks with the best growth features consistently outperform 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 chip 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 STMicroelectronics is 55%, investors should actually focus on the projected growth. The company's EPS is expected to grow 50.6% this year, crushing the industry average, which calls for EPS growth of 33.9%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, STMicroelectronics has an S/TA ratio of 0.78, which means that the company gets $0.78 in sales for each dollar in assets. Comparing this to the industry average of 0.63, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And STMicroelectronics is well positioned from a sales growth perspective too. The company's sales are expected to grow 21.6% this year versus the industry average of 14.9%.
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 STMicroelectronics have been revising upward. The Zacks Consensus Estimate for the current year has surged 14.3% over the past month.
Bottom Line
While the overall earnings estimate revisions have made STMicroelectronics a Zacks Rank #2 stock, it has earned itself a Growth Score of B based on a number of factors, including the ones discussed above.
Image: Bigstock
Here is Why Growth Investors Should Buy STMicroelectronics (STM) Now
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. But finding a great growth stock is not easy at all.
In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.
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.
STMicroelectronics (STM - Free Report) 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.
Studies have shown that stocks with the best growth features consistently outperform 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 chip 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 STMicroelectronics is 55%, investors should actually focus on the projected growth. The company's EPS is expected to grow 50.6% this year, crushing the industry average, which calls for EPS growth of 33.9%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, STMicroelectronics has an S/TA ratio of 0.78, which means that the company gets $0.78 in sales for each dollar in assets. Comparing this to the industry average of 0.63, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And STMicroelectronics is well positioned from a sales growth perspective too. The company's sales are expected to grow 21.6% this year versus the industry average of 14.9%.
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 STMicroelectronics have been revising upward. The Zacks Consensus Estimate for the current year has surged 14.3% over the past month.
Bottom Line
While the overall earnings estimate revisions have made STMicroelectronics a Zacks Rank #2 stock, it has earned itself a Growth Score of B based on a number of factors, including the ones discussed above.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
This combination indicates that STMicroelectronics is a potential outperformer and a solid choice for growth investors.