Is Booz Allen (BAH) a Solid Growth Stock? 3 Reasons to Think " Yes "
Booz Allen (BAH) is well positioned to outperform the market, as it exhibits above-average growth in financials.
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. But finding a growth stock that can live up to its true potential can be a tough task.
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, 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.
Booz Allen Hamilton (BAH) 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 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).
While there are numerous reasons why the stock of this defense contractor is a great growth pick right now, we have highlighted three of the most important factors below:
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 Booz Allen is 22.4%, investors should actually focus on the projected growth. The company's EPS is expected to grow 9% this year, crushing the industry average, which calls for EPS growth of 8%.
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, Booz Allen has an S/TA ratio of 1.39, which means that the company gets $1.39 in sales for each dollar in assets. Comparing this to the industry average of 1.31, 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 Booz Allen is well positioned from a sales growth perspective too. The company's sales are expected to grow 8.2% this year versus the industry average of 6%.
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 Booz Allen. The Zacks Consensus Estimate for the current year has surged 0.1% over the past month.
While the overall earnings estimate revisions have made Booz Allen 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 indicates that Booz Allen is a potential outperformer and a solid choice for growth investors.
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