3 Reasons Growth Investors Will Love Adobe (ADBE)

$Adobe(ADBE)$

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.

Here are three of the most important factors that make the stock of this software maker a great growth pick right now.

Earnings Growth

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 Adobe is 16.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 12.1% this year, crushing the industry average, which calls for EPS growth of 11.7%.

Cash Flow Growth

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 Adobe is 12.1%, which is higher than many of its peers. In fact, the rate compares to the industry average of 2.2%.

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 16.8% over the past 3-5 years versus the industry average of 13%.

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 Adobe.

This combination positions Adobe well for outperformance, so growth investors may want to bet on it.