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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. However, it isn't easy to find a great growth stock.
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 task of finding cutting-edge growth stocks is made easy with the help of 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.
Our proprietary system currently recommends Exelixis (EXEL) as one such stock. This company not only has a favorable Growth Score, but also carries a top Zacks Rank.
Studies have shown that stocks with the best growth features consistently outperform the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.
Here are three of the most important factors that make the stock of this drug developer 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 Exelixis is 6.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 114.3% this year, crushing the industry average, which calls for EPS growth of 23.1%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Exelixis has an S/TA ratio of 0.73, which means that the company gets $0.73 in sales for each dollar in assets. Comparing this to the industry average of 0.23, it can be said that the company is more efficient.
While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Exelixis looks attractive from a sales growth perspective as well. The company's sales are expected to grow 17.3% this year versus the industry average of 0%.