Is Echo Global Logistics (ECHO) a Solid Growth Stock? 3 Reasons to Think " Yes "
Echo Global Logistics (ECHO) possesses solid growth attributes, which could help it handily outperform the market.
Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's attention and deliver solid returns. However, it isn't easy to find a great growth stock.
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.
Echo Global Logistics (ECHO) 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.
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 provider of supply-chain management services 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. 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 Echo Global Logistics is 28%, investors should actually focus on the projected growth. The company's EPS is expected to grow 110.3% this year, crushing the industry average, which calls for EPS growth of 69.9%.
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, Echo Global Logistics has an S/TA ratio of 3.31, which means that the company gets $3.31 in sales for each dollar in assets. Comparing this to the industry average of 1.37, 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 Echo Global Logistics looks attractive from a sales growth perspective as well. The company's sales are expected to grow 41.1% this year versus the industry average of 18.9%.
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 Echo Global Logistics. The Zacks Consensus Estimate for the current year has surged 1.3% over the past month.
Echo Global Logistics has not only earned a Growth Score of B based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 because of the positive earnings estimate revisions.
This combination positions Echo Global Logistics well for outperformance, so growth investors may want to bet on it.
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