In This Article:
Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market's attention and produce exceptional returns. But finding a great growth stock is not easy at all.
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.
However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company's real growth prospects, makes it pretty easy to find cutting-edge growth stocks.
Copart (CPRT) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it carries a top Zacks Rank.
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 and a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Here are three of the most important factors that make the stock of this auctioneer of damaged and recovered stolen vehicles 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 Copart is 24.6%, investors should actually focus on the projected growth. The company's EPS is expected to grow 25.8% this year, crushing the industry average, which calls for EPS growth of 21.3%.
Impressive Asset Utilization Ratio
Growth investors often overlook asset utilization ratio, also known as sales-to-total-assets (S/TA) ratio, but it is an important feature of a real growth stock. This metric shows how efficiently a firm is utilizing its assets to generate sales.
Right now, Copart has an S/TA ratio of 0.83, which means that the company gets $0.83 in sales for each dollar in assets. Comparing this to the industry average of 0.7, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Copart looks attractive from a sales growth perspective as well. The company's sales are expected to grow 10.2% this year versus the industry average of 2.1%.