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Here is Why Growth Investors Should Buy Quanta Services (PWR) Now
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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. But finding a great growth stock is not easy at all.
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 task of finding cutting-edge growth stocks is made easy 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.
Quanta Services (PWR - 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.
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 specialty contractor for utility and energy companies 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. 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 Quanta Services is 23.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 20% this year, crushing the industry average, which calls for EPS growth of 11.3%.
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, Quanta Services has an S/TA ratio of 1.4, which means that the company gets $1.4 in sales for each dollar in assets. Comparing this to the industry average of 1.14, 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 Quanta Services looks attractive from a sales growth perspective as well. The company's sales are expected to grow 14.2% this year versus the industry average of 6.6%.
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.
There have been upward revisions in current-year earnings estimates for Quanta Services. The Zacks Consensus Estimate for the current year has surged 0.3% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Quanta Services 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.
Image: Bigstock
Here is Why Growth Investors Should Buy Quanta Services (PWR) Now
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 great growth stock is not easy at all.
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 task of finding cutting-edge growth stocks is made easy 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.
Quanta Services (PWR - 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.
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 specialty contractor for utility and energy companies 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. 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 Quanta Services is 23.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 20% this year, crushing the industry average, which calls for EPS growth of 11.3%.
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, Quanta Services has an S/TA ratio of 1.4, which means that the company gets $1.4 in sales for each dollar in assets. Comparing this to the industry average of 1.14, 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 Quanta Services looks attractive from a sales growth perspective as well. The company's sales are expected to grow 14.2% this year versus the industry average of 6.6%.
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.
There have been upward revisions in current-year earnings estimates for Quanta Services. The Zacks Consensus Estimate for the current year has surged 0.3% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Quanta Services 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.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
This combination positions Quanta Services well for outperformance, so growth investors may want to bet on it.