Is HCI Group (HCI) a Solid Growth Stock? 3 Reasons to Think "Yes"
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.
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, it's pretty easy to find cutting-edge growth stocks 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.
HCI Group (HCI) 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.
Research shows that stocks carrying the best growth features consistently beat 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).
While there are numerous reasons why the stock of this property and casualty insurance holding company is a great growth pick right now, we have highlighted three of the most important factors below:
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 HCI Group is 117%, investors should actually focus on the projected growth. The company's EPS is expected to grow 109.7% this year, crushing the industry average, which calls for EPS growth of 2.9%.
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, HCI Group has an S/TA ratio of 0.36, which means that the company gets $0.36 in sales for each dollar in assets. Comparing this to the industry average of 0.33, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And HCI Group looks attractive from a sales growth perspective as well. The company's sales are expected to grow 18.4% this year versus the industry average of 5.8%.
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 HCI Group. The Zacks Consensus Estimate for the current year has surged 3.7% over the past month.
While the overall earnings estimate revisions have made HCI Group 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 HCI Group is a potential outperformer and a solid choice for growth investors.
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HCI Group, Inc. (HCI) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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