3 Compelling Reasons Why Amazon Is a Top Pick for Growth Investors

Growth investors typically seek out companies demonstrating exceptional financial growth, as high growth carries the potential to draw significant market interest and yield robust returns. However, identifying truly stellar growth stocks can be a formidable challenge. High growth often comes with heightened risk and volatility. Furthermore, investing in companies whose growth trajectory is on the decline could result in substantial losses.

Nonetheless, there are tools and methodologies that can simplify the search for promising growth stocks. For example, systems like the Zacks Growth Style Score can assist investors by evaluating the nuances of a company's growth prospects beyond mere financials.

Amazon (AMZN) stands out as a recommended pick according to such proprietary systems. Besides having a favorable Growth Score, it also boasts a top Zacks Rank, indicative of positive analyst sentiment and potential for outperformance.

Earnings Growth: A Key Indicator

Earnings growth is a paramount factor for investors, as rapidly increasing profits capture investor interest and are usually associated with strong future performance and stock appreciation. For growth investors, double-digit earnings growth is particularly attractive and often signals promising business prospects.

Amazon boasts a historical EPS growth rate of 7.9%, but it's the forward-looking projections that are even more compelling. The company's EPS is forecasted to grow by 39.1% this year, outpacing the industry's average projected growth rate of 27.4%.

The Importance of Cash Flow Growth

Cash flow is crucial for all businesses, but for growth companies, robust cash flow growth is essential. It enables expansion and innovation without relying on external financing, which can be costly. Amazon's year-over-year cash flow growth stands at 59.4%, surpassing many of its peers and significantly outperforming the industry average of -3.3%.

Considering Amazon's historical annualized cash flow growth rate of 25.3% over the past 3-5 years, the current figure is a strong indicator of the company's financial health and growth momentum compared to the industry average of 7.7%.

Significance of Positive Earnings Estimate Revisions

A positive trajectory in earnings estimate revisions is another aspect investors should account for. There is a proven correlation between the direction of earnings estimate revisions and stock price movement in the short term.

For Amazon, the current-year earnings estimates have been on an upward trend. The Zacks Consensus Estimate for the current year has risen by 10.7% over the last month, reinforcing investor confidence.

Bottom Line

With a Growth Score of A and a Zacks Rank #1 reflecting favorable earnings estimate revisions, Amazon holds a promising position for growth investors. The company's strong earnings outlook, coupled with robust cash flow growth, suggest that Amazon could substantially outperform the market, making it a compelling investment choice for those focused on growth.

Growth, Investors, Amazon