For growth-oriented investors, identifying stocks with robust financial growth is crucial, as this attribute often attracts market attention and delivers substantial returns. Nevertheless, finding such stellar growth stocks can be challenging, given the inherent risk and volatility associated with them. Investing in a stock with a growth story that has peaked or is nearing its end can result in significant losses.
However, with the help of the Zacks Growth Style Score, part of the Zacks Style Scores system, pinpointing cutting-edge growth stocks becomes more manageable. This proprietary system not only recommends Nvidia (NASDAQ:NVDA) but also assigns it a top Zacks Rank.
Research consistently shows that stocks exhibiting the strongest growth characteristics consistently outperform the market. Here are three compelling factors that make Nvidia, a leading graphics chip manufacturer for gaming and artificial intelligence, an outstanding growth pick at this time:
1. Earnings Growth
Earnings growth stands as one of the most critical factors for investors, as surging profits often drive stock price appreciation. For growth investors, double-digit earnings growth is highly desirable, signaling strong prospects and potential stock price gains.
While Nvidia boasts a historical EPS growth rate of 31.2%, it’s the projected growth that should capture investors’ attention. The company is anticipated to achieve a remarkable EPS growth rate of 219.3% this year, significantly surpassing the industry average, which calls for an EPS decline of -9.4%.
2. Impressive Asset Utilization Ratio
The asset utilization ratio, also known as the sales-to-total assets (S/TA) ratio, is an often overlooked but vital indicator in growth investing. This metric highlights how efficiently a company utilizes its assets to generate sales.
Nvidia currently boasts an S/TA ratio of 0.74, indicating that the company generates $0.74 in sales for every dollar in assets. Compared to the industry average of 0.72, it’s clear that Nvidia operates more efficiently in this regard.
Sales growth is equally significant, and Nvidia is well-positioned for it. The company’s sales are projected to surge by 81.7% this year, in stark contrast to the industry average’s anticipated decline of -6%.
3. Promising Earnings Estimate Revisions
Beyond the metrics mentioned above, investors should pay attention to the trend in earnings estimate revisions, with a positive trend being a strong positive signal. Empirical research underscores the strong correlation between trends in earnings estimate revisions and near-term stock price movements.
Nvidia currently enjoys upward revisions in its current-year earnings estimates. The Zacks Consensus Estimate for the current year has surged by an impressive 42.9% over the past month.
Conclusion
In light of the favorable earnings estimate revisions, Nvidia is a standout growth stock with immense potential for investors seeking growth opportunities in the technology sector.
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