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.
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.
While there are numerous reasons why the stock of this oil and gas exploration and production company $Occidental(OXY)$ is a great growth pick right now, three of the most important factors are below:
Earnings Growth
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 Occidental is 24%, investors should actually focus on the projected growth. The company's EPS is expected to grow 264.2% this year, crushing the industry average, which calls for EPS growth of 127.1%.
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.
Year-over-year cash flow growth for Occidental is 142.1%, which is higher than many of its peers. In fact, the rate compares to the industry average of 0.9%.
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 25.5% over the past 3-5 years versus the industry average of 16.6%.
Promising Earnings Estimate Revisions
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.
The current-year earnings estimates for Occidental have been revising upward.
Bottom Line
Occidental has earned a Growth Score of A based on a number of factors, including the ones discussed above.
This combination positions Occidental well for outperformance, so growth investors may want to bet on it.
Source: Nasdaq
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