Why Universal Technical May Be a Promising Growth Stock

Investors are often captivated by growth stocks due to their potential for above-average financial growth, leading to notable market performance and extraordinary returns. Identifying a high-quality growth stock, however, is not a straightforward task. Apart from the inherent volatility, these stocks carry a higher level of risk. Moreover, there is always a possibility of investing in a company whose period of growth is tapering off or coming to an end.

Growth Measures That Stand Out

While searching for exceptional growth stocks, it's crucial to look at more than the usual growth metrics. Universal Technical Institute (UTI) is a company that not only boasts a favorable Growth Score but also possesses a top Zacks Rank, indicating robust growth potential.

Historical data indicates that companies with solid growth characteristics tend to surpass the market, especially those with both a high Growth Score and a Zacks Rank of #1 (Strong Buy) or #2 (Buy).

Three Key Factors for Growth

Several reasons make UTI an attractive growth pick, but let's focus on three main aspects:

Earnings Growth

A quintessential factor for growth-focused investors is earnings growth. High profit surges are often sought after as they signal strong company prospects and potential share price increases. While UTI has a notable historical EPS growth rate of 36.8%, its projected growth is even more impressive, with an expected leap of 448.7% this year, dramatically outpacing the industry average of 21.6%.

Effective Asset Utilization

Another crucial yet sometimes overlooked aspect is the asset utilization ratio, which measures how efficiently a company is using its assets to produce sales. UTI is outperforming in this area with an S/TA ratio of 0.95, indicating that the company generates $0.95 in sales for each dollar of assets. This figure surpasses the industry average of 0.65, showing higher efficiency.

Moreover, vigorous sales growth complements effective asset utilization. UTI's sales are projected to rise by 19.3% this year, significantly above the industry's expected 5.8%.

Positive Earnings Estimate Revisions

The trend in earnings estimate revisions should also be taken into account. A positive trajectory in these revisions is a good sign, as research suggests a strong connection between earnings estimate trends and short-term stock price movements.

For UTI, the current-year earnings estimates have seen upward revisions. The consensus estimate for this year has increased by 1.4% over the past month.

With a Growth Score of B and a Zacks Rank #2, thanks to these positive revisions, UTI is positioned for potential market outperformance, drawing the attention of growth investors.

Growth, Stock, Potential