Investors actively seek out growth stocks to capitalize on their potential for above-average financial growth, capturing market attention and yielding exceptional returns.
However, identifying a truly promising growth stock is a challenging task, considering the inherent volatility and above-average risk associated with such investments. There is always the risk of investing in a stock whose growth story has either concluded or is approaching its end.
Fortunately, utilizing the Zacks Growth Style Score, part of the Zacks Style Scores system, makes identifying cutting-edge growth stocks easier. This system goes beyond traditional growth attributes to thoroughly analyze a company’s genuine growth prospects.
Currently, Microsoft (MSFT) stands out among the recommended stocks according to this proprietary system, boasting a favorable Growth Score coupled with a top Zacks Rank.
While there are multiple reasons why Microsoft is deemed a strong growth pick at present, three key factors are highlighted below:
- Earnings Growth: One of the most crucial aspects for investors is earnings growth, as escalating profit levels are highly sought after. For growth-focused investors, double-digit earnings growth is particularly preferable, often signaling robust prospects and potential stock price gains. Microsoft has a historical EPS growth rate of 21.3%, with a projected growth of 13.4% for the current year, surpassing the industry average of 12.4%.
- Impressive Asset Utilization Ratio: The asset utilization ratio, or sales-to-total-assets (S/TA) ratio, is a frequently overlooked but significant indicator in growth investing. It showcases how efficiently a company is using its assets to generate sales. Microsoft’s S/TA ratio of 0.54 indicates that the company generates $0.54 in sales for every dollar in assets, outperforming the industry average of 0.48. This efficiency, combined with a sales growth expectation of 14.3% compared to the industry average of 5.7%, further positions Microsoft favorably.
- Promising Earnings Estimate Revisions: The validation of a stock’s superiority lies in the trend of earnings estimate revisions, with a positive trend being favorable. Research consistently demonstrates a strong correlation between these trends and near-term stock price movements. Microsoft has seen upward revisions in current-year earnings estimates, with the Zacks Consensus Estimate surging by 2.1% over the past month.
Bottom Line: With a Growth Score of A, supported by factors such as earnings growth, an impressive asset utilization ratio, and positive earnings estimate revisions, Microsoft holds a Zacks Rank #2.
This combination positions Microsoft favorably for outperformance, making it an appealing choice for growth investors seeking promising opportunities.
