3 Reasons Why Nucor (NUE) Is a Great Growth Stock
Nucor (NUE) possesses solid growth attributes, which could help it handily outperform the market.
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.
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.
Nucor (NUE) 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 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).
Here are three of the most important factors that make the stock of this steel company a great growth pick right now.
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 Nucor is 12.6%, investors should actually focus on the projected growth. The company's EPS is expected to grow 537.4% this year, crushing the industry average, which calls for EPS growth of 428.1%.
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, Nucor has an S/TA ratio of 1.24, which means that the company gets $1.24 in sales for each dollar in assets. Comparing this to the industry average of 0.94, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Nucor is well positioned from a sales growth perspective too. The company's sales are expected to grow 76.5% this year versus the industry average of 42.7%.
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 Nucor have been revising upward. The Zacks Consensus Estimate for the current year has surged 10.1% over the past month.
Nucor 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 #1 because of the positive earnings estimate revisions.
This combination positions Nucor well for outperformance, so growth investors may want to bet on it.
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