Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a great growth stock is not easy at all.
In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.
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.
Diebold Nixdorf (DBD) 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.
Research shows that stocks carrying the best growth features consistently beat 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.
While there are numerous reasons why the stock of this a maker of bank teller machines, retail systems and other equipment is a great growth pick right now, we have highlighted three of the most important factors below:
Earnings Growth
Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.
While the historical EPS growth rate for Diebold Nixdorf is 3.2%, investors should actually focus on the projected growth. The company's EPS is expected to grow 414.2% this year, crushing the industry average, which calls for EPS growth of 14.1%.
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 exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, Diebold Nixdorf has an S/TA ratio of 1.11, which means that the company gets $1.11 in sales for each dollar in assets. Comparing this to the industry average of 0.42, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And Diebold Nixdorf is well positioned from a sales growth perspective too. The company's sales are expected to grow 11.1% this year versus the industry average of 11%.
Promising Earnings Estimate Revisions
Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable 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 Diebold Nixdorf have been revising upward. The Zacks Consensus Estimate for the current year has surged 18.1% over the past month.
Bottom Line
While the overall earnings estimate revisions have made Diebold Nixdorf a Zacks Rank #1 stock, it has earned itself a Growth Score of A based on a number of factors, including the ones discussed above.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
This combination indicates that Diebold Nixdorf is a potential outperformer and a solid choice for growth investors.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
