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The Pennant Group (PNTG) is an Incredible Growth Stock: 3 Reasons Why
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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. However, it isn't easy to find a great growth stock.
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.
Our proprietary system currently recommends The Pennant Group, Inc. (PNTG - Free Report) as one such stock. This 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 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).
While there are numerous reasons why the stock of this 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 The Pennant Group is 0.6%, investors should actually focus on the projected growth. The company's EPS is expected to grow 22.4% this year, crushing the industry average, which calls for EPS growth of 13.3%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, The Pennant Group has an S/TA ratio of 1.09, which means that the company gets $1.09 in sales for each dollar in assets. Comparing this to the industry average of 0.82, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And The Pennant Group is well positioned from a sales growth perspective too. The company's sales are expected to grow 20% this year versus the industry average of 6%.
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 The Pennant Group have been revising upward. The Zacks Consensus Estimate for the current year has surged 0.5% over the past month.
Bottom Line
The Pennant Group has not only earned a Growth Score of B 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.
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The Pennant Group (PNTG) is an Incredible Growth Stock: 3 Reasons Why
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. However, it isn't easy to find a great growth stock.
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.
Our proprietary system currently recommends The Pennant Group, Inc. (PNTG - Free Report) as one such stock. This 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 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).
While there are numerous reasons why the stock of this 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 The Pennant Group is 0.6%, investors should actually focus on the projected growth. The company's EPS is expected to grow 22.4% this year, crushing the industry average, which calls for EPS growth of 13.3%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, The Pennant Group has an S/TA ratio of 1.09, which means that the company gets $1.09 in sales for each dollar in assets. Comparing this to the industry average of 0.82, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And The Pennant Group is well positioned from a sales growth perspective too. The company's sales are expected to grow 20% this year versus the industry average of 6%.
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 The Pennant Group have been revising upward. The Zacks Consensus Estimate for the current year has surged 0.5% over the past month.
Bottom Line
The Pennant Group has not only earned a Growth Score of B 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 positions The Pennant Group well for outperformance, so growth investors may want to bet on it.