The Allure of Growth Stocks: Why Meta Platforms Stands Out
Growth stocks captivate many investors because they often show higher-than-average financial growth, which can lead to impressive returns. However, identifying a winning growth stock is challenging.
Often, these stocks carry above-average risks and can be volatile. When the growth story ends or slows down, investors risk facing substantial losses.
Fortunately, Zacks Growth Style Score makes it easier to pinpoint promising growth stocks. This system evaluates a company’s true growth potential beyond traditional metrics.
Currently, Meta Platforms (META) is on the recommended list. Alongside a favorable Growth Score, it boasts a top Zacks Rank.
Research indicates that stocks with strong growth characteristics consistently outpace the market. In particular, those with a Growth Score of A or B, and a Zacks Rank of #1 (Strong Buy) or #2 (Buy), tend to achieve even greater returns.
Strong Earnings Growth
Earnings growth is vital. Companies that show significant profit increases frequently attract investor interest. For growth investors, a double-digit earnings growth indicates strong potential for stock price appreciation.
Meta Platforms has a historical EPS growth rate of 18.2%, but the focus should be on its projected growth. The company’s EPS is anticipated to rise by 52.5% this year, well above the industry average of 30.6%.
High Asset Utilization Ratio
The asset utilization ratio, or sales-to-total-assets (S/TA) ratio, is another important but often overlooked metric in growth investing. It reveals how effectively a company uses its assets to generate sales.
Meta Platforms currently has an S/TA ratio of 0.67, meaning it generates $0.67 in sales for every dollar in assets. This is better than the industry average of 0.57, suggesting greater efficiency.
Sales growth is equally important. Meta also projects impressive sales growth of 20.9% this year, far exceeding the industry average of 6.6%.
Positive Earnings Estimate Revisions
Another factor to consider is the trend in earnings estimate revisions. Generally, an upward trend signals good potential for stock price growth. Studies confirm a strong link between these revisions and stock movements.
For Meta Platforms, the current-year earnings estimates have been rising. The Zacks Consensus Estimate has increased by 0.4% in the past month.
Conclusion
Meta Platforms not only holds a Growth Score of B based on several factors we’ve discussed, but it also carries a Zacks Rank #2 due to the positive revisions in earnings estimates.
This combination makes Meta Platforms a potentially solid choice for growth investors.
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Meta Platforms, Inc. (META): Free Stock Analysis Report.
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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.