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Growth investors focus on stocks that experience above-average financial growth, as this characteristic helps these stocks grab market attention and generate strong returns. However, finding good growing stock is not easy.
By their nature, these stocks present above-average risk and volatility. Additionally, if a business’s growth story is over or coming to an end, betting on it could result in a significant loss.
However, the task of finding top growth stocks is made easier with the help of the Zacks Growth Style Score (part of the Zacks Style Scores system), which goes beyond traditional growth attributes to analyze growth prospects. realities of a business.
Advanced Micro Devices (AMD) is on the list of such actions currently recommended by our proprietary system. In addition to a favorable growth score, he holds a higher Zacks rank.
Research shows that stocks with the best growth characteristics consistently beat the market. And for stocks that have a combination of a Growth Score of A or B and Zacks # 1 (strong buy) or 2 (buy), the returns are even better.
While there are plenty of reasons why this chipmaker’s stock is a great growing choice right now, we’ve highlighted three of the most important factors below:
Profit growth
Earnings growth is arguably the most important factor, as stocks with unusually high levels of earnings tend to grab the attention of most investors. For growth investors, double-digit earnings growth is highly preferable, as it is often seen as an indication of strong prospects (and share price gains) for the company under consideration.
While the historic EPS growth rate for Advanced Micro is 95.3%, investors should actually focus on projected growth. The company’s EPS is expected to grow 72.4% this year, beating the industry average, which calls for EPS growth of 44%.
Cash flow growth
Cash is the lifeblood of any business, but above average cash flow growth is more beneficial and important for growth-oriented businesses than for mature businesses. Indeed, a high accumulation of liquidity allows these companies to undertake new projects without raising expensive external funds.
Currently, Advanced Micro’s year-over-year cash flow growth is 97%, which is higher than many of its peers. In fact, the rate compares to the industry average of 12.5%.
While investors should actually be mindful of the current growth in cash flow, it’s also worth taking a look at the historic rate to put the current reading in perspective. The annualized growth rate of the company’s cash flow has been 49.6% over the past 3-5 years, compared to an industry average of 8%.
Revisions to promising earnings estimates
The superiority of a stock in terms of the parameters described above can be further validated by examining the trend of revisions to earnings estimates. A positive trend is of course favorable here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
The current year profit estimates for Advanced Micro have been revised upwards. Zacks’ consensus estimate for the current year jumped 0.2% over the past month.
Final result
Advanced Micro not only achieved a Growth Score of A based on a number of factors including those discussed above, but it also carries a Zacks Rank # 2 due to the positive revisions to earnings estimates.
You can see the full list of Zacks # 1 Rank (Strong Buy) stocks today here.
This combination indicates that Advanced Micro is an outperforming potential and a solid choice for growth investors.
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Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
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