3 Reasons Growth Investors Will Love Lenovo Group Ltd. (LNVGY)
Lenovo Group Ltd. (LNVGY) 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. But finding a growth stock that can live up to its true potential can be a tough task.
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.
Our proprietary system currently recommends Lenovo Group Ltd. (LNVGY) 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).
Here are three of the most important factors that make the stock of this company a great growth pick right now.
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 Lenovo Group Ltd. is 32.1%, investors should actually focus on the projected growth. The company's EPS is expected to grow 74.7% this year, crushing the industry average, which calls for EPS growth of 41.3%.
Cash Flow Growth
While cash is the lifeblood of any business, higher-than-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. That's because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds.
Right now, year-over-year cash flow growth for Lenovo Group Ltd. is 36.9%, which is higher than many of its peers. In fact, the rate compares to the industry average of 16.9%.
While investors should actually consider the current cash flow growth, it's worth taking a look at the historical rate too for putting the current reading into proper perspective. The company's annualized cash flow growth rate has been 29.6% over the past 3-5 years versus the industry average of 13.5%.
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 Lenovo Group Ltd. The Zacks Consensus Estimate for the current year has surged 2.1% over the past month.
While the overall earnings estimate revisions have made Lenovo Group 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.
This combination indicates that Lenovo Group Ltd. is a potential outperformer and a solid choice for growth investors.
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Lenovo Group Ltd. (LNVGY): Free Stock Analysis Report
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