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3 Reasons Why Growth Investors Shouldn't Overlook ABM Industries (ABM)

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. However, it isn't easy to find a great growth stock.

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, 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, makes it pretty easy to find cutting-edge growth stocks.

ABM Industries (ABM) 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 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.

While there are numerous reasons why the stock of this provider of cleaning and other maintenance services for commercial buildings, hospitals and airports is a great growth pick right now, we have highlighted three of the most important factors below:

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for ABM Industries is 6.5%, investors should actually focus on the projected growth. The company's EPS is expected to grow 33.3% this year, crushing the industry average, which calls for EPS growth of 29.9%.

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 shows how efficiently a firm is utilizing its assets to generate sales.

Right now, ABM Industries has an S/TA ratio of 1.53, which means that the company gets $1.53 in sales for each dollar in assets. Comparing this to the industry average of 1.36, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And ABM Industries looks attractive from a sales growth perspective as well. The company's sales are expected to grow 3.1% this year versus the industry average of 1.6%.

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.

There have been upward revisions in current-year earnings estimates for ABM Industries. The Zacks Consensus Estimate for the current year has surged 23.3% over the past month.

Bottom Line

While the overall earnings estimate revisions have made ABM Industries a Zacks Rank #1 stock, it has earned itself a Growth Score of B 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 ABM Industries is a potential outperformer and a solid choice for growth investors.


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