Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. However, it isn't easy to find a great growth stock.
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, 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.
Merit Medical (MMSI) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it 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 maker of disposable medical devices a great growth pick right now.
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 Merit Medical is 21.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 11.3% this year, crushing the industry average, which calls for EPS growth of 8.1%.
Cash is the lifeblood of any business, but higher-than-average cash flow growth is more beneficial and important for growth-oriented companies than for mature companies. That's because, high cash accumulation enables these companies to undertake new projects without raising expensive outside funds.
Right now, year-over-year cash flow growth for Merit Medical is 12.2%, which is higher than many of its peers. In fact, the rate compares to the industry average of -5.2%.
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 11.5% over the past 3-5 years versus the industry average of 3.5%.
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 Merit Medical. The Zacks Consensus Estimate for the current year has surged 1.6% over the past month.
While the overall earnings estimate revisions have made Merit Medical 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.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
This combination positions Merit Medical well for outperformance, so growth investors may want to bet on it.
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