Is Frontdoor 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.

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, 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.

Frontdoor FTDR 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 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 home services provider 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. 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 Frontdoor is 4.8%, investors should actually focus on the projected growth. The company's EPS is expected to grow 18.6% this year, crushing the industry average, which calls for EPS growth of 11.9%.

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, Frontdoor 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 0.89, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Frontdoor looks attractive from a sales growth perspective as well. The company's sales are expected to grow 3% this year versus the industry average of 1.1%.

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 Frontdoor have been revising upward. The Zacks Consensus Estimate for the current year has surged 8.3% over the past month.

Bottom Line

Frontdoor 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 Frontdoor is a potential outperformer and a solid choice for growth investors.

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