Alphabet (GOOGL): A Prime Growth Stock Pick for Savvy Investors
Growth investors focus on stocks that showcase above-average financial growth, as this characteristic attracts market attention and often leads to solid returns. However, identifying a high-quality growth stock is a complex task due to inherent volatility and above-average risk. Additionally, there’s always a chance of selecting a stock whose growth story is nearing its end. The Zacks Growth Style Score simplifies this process by evaluating a company’s real growth potential beyond traditional metrics. One such recommendation from this proprietary system is Alphabet Inc. (GOOGL). With a favourable Growth Score and a top Zacks Rank, Alphabet stands out as a compelling growth stock. Here, we explore three critical factors that make Alphabet an attractive pick for growth investors.
Earnings Growth
Earnings growth is arguably the most important factor when assessing a growth stock. Stocks with rapidly increasing profit levels tend to attract investor interest, leading to price gains. For growth investors, double-digit earnings growth is a strong indicator of promising prospects.
- Historical EPS Growth: Alphabet’s historical earnings per share (EPS) growth rate stands at an impressive 23.4%.
- Projected EPS Growth: More crucially, Alphabet’s EPS is expected to grow by 31.1% this year, significantly outpacing the industry average of 28.1%.
This robust earnings growth rate underscores Alphabet’s potential for delivering strong financial performance and makes it a standout choice for growth-focused portfolios.
Cash Flow Growth
Cash flow is the lifeblood of any business. For growth-oriented companies, higher-than-average cash flow growth is essential because it enables them to undertake new projects without relying on expensive external financing.
- Current Cash Flow Growth: Alphabet’s year-over-year cash flow growth is 16.7%, surpassing many of its peers. This is particularly noteworthy compared to the industry average of -15.4%.
- Historical Cash Flow Growth: To put this in perspective, Alphabet’s annualised cash flow growth rate over the past 3-5 years has been 15.1%, compared to the industry average of 12.5%.
Alphabet’s ability to generate substantial cash flow highlights its capacity to invest in future growth opportunities, thereby reinforcing its position as a strong growth stock candidate.
Promising Earnings Estimate Revisions
The superiority of a stock in earnings growth and cash flow can be further validated by examining trends in earnings estimate revisions. Positive revisions indicate growing confidence among analysts about a company’s future performance, which often correlates with near-term stock price movements.
- Upward Revisions: There have been several upward revisions in current-year earnings estimates for Alphabet. Specifically, the Zacks Consensus Estimate for the current year has increased by 0.4% over the past month.
These upward revisions signal that analysts are optimistic about Alphabet’s future earnings potential, further enhancing its appeal to growth investors.
Alphabet’s combination of strong earnings growth, robust cash flow, and positive earnings estimate revisions has earned it a Zacks Rank #1 (Strong Buy) and a Growth Score of B. These factors collectively signify that Alphabet is well-positioned to outperform the market and is a solid choice for growth investors seeking reliable and profitable opportunities.
