3 Reasons Why Alphabet Inc. (GOOG) Is a Great Growth Stock
Alphabet Inc. (GOOG) possesses solid growth attributes, which could help it handily outperform the market.
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. However, it isn't easy to find a great growth stock.
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, it's pretty easy to find cutting-edge growth stocks 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.
Alphabet Inc. (GOOG) 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 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. 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 Alphabet Inc. is 26.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 83.2% this year, crushing the industry average, which calls for EPS growth of 43.9%.
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 shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Alphabet Inc. has an S/TA ratio of 0.72, which means that the company gets $0.72 in sales for each dollar in assets. Comparing this to the industry average of 0.51, 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 Alphabet Inc. looks attractive from a sales growth perspective as well. The company's sales are expected to grow 39.8% this year versus the industry average of 6.3%.
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.
There have been upward revisions in current-year earnings estimates for Alphabet Inc. The Zacks Consensus Estimate for the current year has surged 5.4% over the past month.
While the overall earnings estimate revisions have made Alphabet Inc. a Zacks Rank #1 stock, it has earned itself a Growth Score of B based on a number of factors, including the ones discussed above.
This combination positions Alphabet Inc. well for outperformance, so growth investors may want to bet on it.
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