3 Reasons Why Growth Investors Shouldn't Overlook Moody's (MCO)
$Moody's(MCO)$ 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.
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.
While there are numerous reasons why the stock of this credit ratings agency is a great growth pick right now, we have highlighted three of the most important factors below:
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 Moody's is 1.3%, investors should actually focus on the projected growth. The company's EPS is expected to grow 14.5% this year, crushing the industry average, which calls for EPS growth of 14.4%.
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, Moody's has an S/TA ratio of 0.45, which means that the company gets $0.45 in sales for each dollar in assets. Comparing this to the industry average of 0.22, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Moody's looks attractive from a sales growth perspective as well. The company's sales are expected to grow 13.6% this year versus the industry average of 0.8%.
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 Moody's have been revising upward. The Consensus Estimate for the current year has surged 2.5% over the past month.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
