Investors often seek growth stocks to capitalize on above-average financial growth, which can lead to market outperformance and substantial returns. However, identifying a strong growth stock requires careful consideration, as these stocks typically come with elevated risk and volatility. The key is to identify companies with genuine growth prospects beyond traditional metrics.
Studies have consistently shown that stocks with robust growth features tend to outperform the market.
Here are three compelling reasons why Nvidia (NASDAQ:NVDA), a leading provider of graphics chips for gaming and artificial intelligence, is considered an exceptional growth pick:
Earnings growth is a crucial factor, as stocks with substantial profit increases often attract investor attention. For growth-oriented investors, double-digit earnings growth is highly preferable, indicating strong prospects and potential stock price gains.
Nvidia has a historical EPS growth rate of 39.9%, showcasing its consistent earnings performance. Moreover, the company’s projected EPS growth for the current year is an impressive 268.1%, surpassing the industry average, which calls for EPS growth of -12.1%.
Impressive Asset Utilization Ratio
The asset utilization ratio, also known as the sales-to-total-assets (S/TA) ratio, is a vital yet often overlooked metric in growth investing. It indicates how efficiently a company utilizes its assets to generate sales.
Nvidia boasts an S/TA ratio of 0.95, meaning the company generates $0.95 in sales for each dollar in assets. This efficiency surpasses the industry average of 0.74, highlighting Nvidia’s effective asset utilization. Additionally, the company exhibits strong sales growth, with an expected increase of 118.4% this year compared to the industry average of -7%.
Promising Earnings Estimate Revisions
Validating the strength of a stock involves examining the trend in earnings estimate revisions. A positive trend in estimates is favorable, as it correlates with near-term stock price movements.
Nvidia has experienced upward revisions in current-year earnings estimates, with the Consensus Estimate surging by 14% over the past month. This positive trend reinforces the company’s growth potential.
In conclusion, Nvidia emerges as a compelling growth stock, driven by robust earnings growth, efficient asset utilization, and promising earnings estimate revisions. These factors position Nvidia as an attractive investment, showcasing potential upside for investors.
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