3 Reasons Growth Investors Will Love Seagate (STX)
Seagate (STX) possesses solid growth attributes, which could help it handily outperform the market.
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. However, it isn't easy to find a great growth stock.
By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company's growth story is over or nearing its end, betting on it 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.
Seagate (STX) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it carries a top Zacks Rank.
Research shows that stocks carrying the best growth features consistently beat 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 electronic storage maker 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 Seagate is 4.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 55.5% this year, crushing the industry average, which calls for EPS growth of 16.7%.
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 shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Seagate has an S/TA ratio of 1.32, which means that the company gets $1.32 in sales for each dollar in assets. Comparing this to the industry average of 0.63, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Seagate looks attractive from a sales growth perspective as well. The company's sales are expected to grow 11.8% this year versus the industry average of 9.2%.
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 Seagate. The Zacks Consensus Estimate for the current year has surged 7% over the past month.
While the overall earnings estimate revisions have made Seagate 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.
This combination positions Seagate well for outperformance, so growth investors may want to bet on it.
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