Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market’s attention and deliver solid returns. But finding a growth stock that can live up to its true potential can be a tough task.
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, it’s pretty easy to find cutting-edge growth stocks 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.
QuinStreet (QNST) is one such stock that our proprietary system currently recommends. The 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 online marketing services company a great growth pick right now.
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 QuinStreet is 34.7%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 66.7% this year, crushing the industry average, which calls for EPS growth of 3.2%.
Cash Flow Growth
While cash is the lifeblood of any business, higher-than-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. That’s because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds.
Right now, year-over-year cash flow growth for QuinStreet is 35.8%, which is higher than many of its peers. In fact, the rate compares to the industry average of 23.4%.
While investors should actually consider the current cash flow growth, it’s worth taking a look at the historical rate too for putting the current reading into proper perspective. The company’s annualized cash flow growth rate has been 44.6% over the past 3-5 years versus the industry average of 21.1%.
Promising Earnings Estimate Revisions
Beyond the metrics outlined above, investors should consider the trend in earnings estimate revisions. A positive trend is a plus 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 QuinStreet have been revising upward. The Zacks Consensus Estimate for the current year has surged 8.5% over the past month.
While the overall earnings estimate revisions have made QuinStreet a Zacks Rank #2 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 QuinStreet is a potential outperformer and a solid choice for growth investors.
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QuinStreet, Inc. (QNST): Free Stock Analysis Report
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