3 Reasons Growth Investors Will Love HCI Group

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a great growth stock is not easy at all.

By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company's growth story is over or nearing its end, betting on it could lead to significant loss.

However, it's pretty easy to find cutting-edge growth stocks with the help of the Zacks Growth Style Score, 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.

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.

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

Earnings Growth

Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract 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 historical EPS growth rate for HCI Group is 33.3%, investors should actually focus on the projected growth. The company's EPS is expected to grow 57.7% this year, crushing the industry average, which calls for EPS growth of 18.3%.

Impressive Asset Utilization Ratio

Asset utilization ratio -- also known as sales-to-total-assets (S/TA) ratio -- is often overlooked by investors, but it is an important indicator in growth investing. This metric shows how efficiently a firm is utilizing its assets to generate sales.

Right now, HCI Group has an S/TA ratio of 0.35, which means that the company gets $0.35 in sales for each dollar in assets. Comparing this to the industry average of 0.34, 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 is well positioned from a sales growth perspective too. The company's sales are expected to grow 40.9% this year versus the industry average of 5%.

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.

There have been upward revisions in current-year earnings estimates for HCI Group. The Zacks Consensus Estimate for the current year has surged 13.1% over the past month.

Bottom Line

HCI Group has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #1 because of the positive earnings estimate revisions.

This combination indicates that HCI Group is a potential outperformer and a solid choice for growth investors.

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