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Looking for a Growth Stock? 3 Reasons Why Square Enix Holdings Co., Ltd. (SQNXF) is a Solid Choice

Square Enix Holdings Co., Ltd. (SQNXF) could produce exceptional returns because of its solid growth attributes.

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This story originally appeared on Zacks

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a growth stock that can live up to its true potential can be a tough task.

- Zacks

In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.

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 Square Enix Holdings Co., Ltd. (SQNXF) 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

Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. 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 Square Enix Holdings Co., Ltd. is 8.7%, investors should actually focus on the projected growth. The company's EPS is expected to grow 31.9% this year, crushing the industry average, which calls for EPS growth of 19.9%.

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, Square Enix Holdings Co., Ltd. has an S/TA ratio of 1.03, which means that the company gets $1.03 in sales for each dollar in assets. Comparing this to the industry average of 0.67, 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 Square Enix Holdings Co., Ltd. is well positioned from a sales growth perspective too. The company's sales are expected to grow 2.2% this year versus the industry average of 0%.

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 Square Enix Holdings Co., Ltd. The Zacks Consensus Estimate for the current year has surged 5.7% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Square Enix Holdings Co., Ltd. a Zacks Rank #2 stock, it has earned itself a Growth Score of B 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 Square Enix Holdings Co., Ltd. well for outperformance, so growth investors may want to bet on it.



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