Here’s why growth investors should buy potlatch (PCH) now
gOnline investors focus on stocks that experience above-average financial growth because this characteristic helps those stocks grab market attention and generate strong returns. However, finding good growing stock is not easy.
In addition to volatility, these stocks by their very nature carry above-average risk. In addition, one could end up losing a title whose growth story is in fact over or nearing its end.
However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which goes beyond traditional growth attributes to analyze a company’s actual growth prospects, makes it quite easy to find growth stocks of point.
Potlatch (PCH) is one of those stocks that our proprietary system currently recommends. The company not only has a favorable growth score, but also holds a top Zacks ranking.
Research shows that stocks with the best growth characteristics consistently beat the market. And returns are even better for stocks that have the combination of a Growth Score of A or B and a Zacks # 1 (strong buy) or 2 (buy) ranking.
While there are plenty of reasons why doing this lumber owner and wood products business is a great choice for growth right now, we’ve highlighted three of the most important factors below:
Earnings growth is arguably the most important factor, as stocks with unusually high profit levels tend to grab 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 historic EPS growth rate for Potlatch is 5.5%, investors should actually be focusing on projected growth. The company’s EPS is expected to rise 156.2% this year, crushing the industry average, which calls for EPS growth of 62.7%.
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 it is for mature businesses. Indeed, a high accumulation of liquidity allows these companies to undertake new projects without raising expensive external funds.
Right now, the year-over-year cash flow growth for Potlatch is 118.6%, which is higher than many of its peers. In fact, the rate compares to the industry average of 29.1%.
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 31.7% over the past 3-5 years, compared to an industry average of 23.3%.
Revisions to promising earnings estimates
Beyond the measures described above, investors should take into account the trend of revisions to earnings estimates. A positive trend is a plus here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
There have been upward revisions to current year profit estimates for Potlatch. Zacks’ consensus estimate for the current year has jumped 24.2% over the past month.
Potlatch 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 # 1 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 positions Potlatch well for outperformance, so growth investors may want to bet on it.
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