3 Reasons Growth Investors Will Love Kontoor

Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market's attention and produce exceptional returns. But finding a growth stock that can live up to its true potential can be a tough task.

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, the task of finding cutting-edge growth stocks is made easy with the help of the Zacks Growth Style Score, which looks beyond the traditional growth attributes to analyze a company's real growth prospects.

Our proprietary system currently recommends Kontoor Brands KTB as one such stock. This company not only has a favorable Growth Score, but also 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).

Here are three of the most important factors that make the stock of this maker of Wrangler and Lee apparel 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. 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 Kontoor is 12.6%, investors should actually focus on the projected growth. The company's EPS is expected to grow 12.7% this year, crushing the industry average, which calls for EPS growth of 6.7%.

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, Kontoor has an S/TA ratio of 1.57, which means that the company gets $1.57 in sales for each dollar in assets. Comparing this to the industry average of 1.15, it can be said that the company is more efficient.

While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Kontoor looks attractive from a sales growth perspective as well. The company's sales are expected to grow 0.1% this year versus the industry average of 0%.

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 Kontoor have been revising upward. The Zacks Consensus Estimate for the current year has surged 1.5% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Kontoor 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.

This combination positions Kontoor well for outperformance, so growth investors may want to bet on it.

To read this article on Zacks.com click here.