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3 Reasons Why ON Semiconductor Corp. (ON) Is a Great Growth Stock

ON Semiconductor Corp. (ON) is well positioned to outperform the market, as it exhibits above-average growth in financials.

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This story originally appeared on Zacks

Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily 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

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 task of finding cutting-edge growth stocks is made easy with the help of 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.

ON Semiconductor Corp. (ON) 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.

Research shows that stocks carrying the best growth features consistently beat the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.

Here are three of the most important factors that make the stock of this semiconductor components maker a great growth pick right now.

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for ON Semiconductor Corp. is 2.7%, investors should actually focus on the projected growth. The company's EPS is expected to grow 228.9% this year, crushing the industry average, which calls for EPS growth of 37.5%.

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, ON Semiconductor Corp. has an S/TA ratio of 0.73, which means that the company gets $0.73 in sales for each dollar in assets. Comparing this to the industry average of 0.59, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And ON Semiconductor Corp. is well positioned from a sales growth perspective too. The company's sales are expected to grow 27.2% this year versus the industry average of 25.4%.

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.

The current-year earnings estimates for ON Semiconductor Corp. have been revising upward. The Zacks Consensus Estimate for the current year has surged 12.5% over the past month.

Bottom Line

ON Semiconductor Corp. has not only earned a Growth Score of A 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.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

This combination indicates that ON Semiconductor Corp. is a potential outperformer and a solid choice for growth investors.



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