Growth stocks hold significant allure for investors, as their above-average financial expansion draws attention and yields exceptional returns. However, identifying a truly outstanding growth stock remains a challenge.
This challenge exists due to the inherent elevated risk and volatility associated with such stocks. Placing bets on a company whose growth story has concluded or is nearing its end can result in substantial losses.
In light of this, Nvidia (NASDAQ:NVDA) is currently endorsed by the Zacks proprietary system. The company not only boasts a favorable Growth Score but also holds a prominent Zacks Rank.
Empirical evidence demonstrates that stocks exhibiting superior growth attributes consistently outperform the market. For stocks with a blend of a Growth Score of A or B and a Zacks Rank of #1 (Strong Buy) or 2 (Buy), returns are even more impressive.
While numerous factors contribute to Nvidia’s standing as an exemplary growth pick—given its role as a manufacturer of graphics chips for gaming and artificial intelligence—we’ve highlighted three pivotal factors below:
Robust Earnings Expansion
Earnings growth stands as arguably the most pivotal factor, as stocks showcasing notably surging profit levels tend to capture the attention of most investors. For growth-focused investors, double-digit earnings growth is highly desirable, as it often signifies strong prospects (and subsequent stock price gains) for the company in question.
While Nvidia boasts a historical EPS growth rate of 31.2%, the focus should be on projected growth. The company’s EPS is anticipated to skyrocket by 145.2% this year, a stark contrast to the industry average that calls for EPS contraction of -9.4%.
Impressive Asset Utilization Efficiency
The asset utilization ratio, commonly known as the sales-to-total assets (S/TA) ratio, is frequently overlooked by growth investors. However, it remains a critical feature of a genuine growth stock. This metric showcases a firm’s efficiency in utilizing its assets to generate sales.
Presently, Nvidia boasts a S/TA ratio of 0.74, implying that the company generates $0.74 in sales for each dollar invested in assets. When compared to the industry average of 0.72, it becomes evident that Nvidia operates more efficiently.
In addition to efficient sales generation, sales growth plays a pivotal role. Nvidia is strategically positioned from a sales growth standpoint as well. The company’s sales are projected to surge by 85.8% this year, a stark contrast to the industry average of -3.9%.
Promising Earnings Estimate Adjustments
Beyond the aforementioned metrics, investors should factor in the trend of earnings estimate revisions. A positive trend is advantageous in this regard. Historical data demonstrates a robust correlation between trends in earnings estimate revisions and short-term stock price movements.
Nvidia has experienced upward adjustments in its current-year earnings estimates. The Zacks Consensus Estimate for the ongoing year has risen by 3.5% over the past month.
In Conclusion
Nvidia has earned a Growth Score of A, based on various factors, including those discussed above. Additionally, it holds a Zacks Rank of #1 due to the optimistic earnings estimate revisions.
This combined standing positions Nvidia favorably for exceptional performance, making it an appealing option for growth-oriented investors to consider.
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