Looking for a Growth Stock? 3 Reasons Why Cambium (CMBM) is a Solid Choice

Zacks
01-09

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.

That's because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.

However, the task of finding cutting-edge growth stocks is made easy 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.

Cambium (CMBM) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it carries a top Zacks Rank.

Studies have shown that stocks with the best growth features consistently outperform the market. And returns are even better for stocks that possess the combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Here are three of the most important factors that make the stock of this company a great growth pick right now.

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. 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 Cambium is 3.4%, investors should actually focus on the projected growth. The company's EPS is expected to grow 95.4% this year, crushing the industry average, which calls for EPS growth of 41.4%.

Impressive Asset Utilization Ratio

Growth investors often overlook asset utilization ratio, also known as sales-to-total-assets (S/TA) ratio, but it is an important feature of a real growth stock. This metric exhibits how efficiently a firm is utilizing its assets to generate sales.

Right now, Cambium has an S/TA ratio of 0.77, which means that the company gets $0.77 in sales for each dollar in assets. Comparing this to the industry average of 0.35, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Cambium is well positioned from a sales growth perspective too. The company's sales are expected to grow 17.6% this year versus the industry average of 1.8%.

Promising Earnings Estimate Revisions

Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable 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 Cambium have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.9% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Cambium 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 Cambium is a potential outperformer and a solid choice for growth investors.

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