3 Solid Reasons Why Microsoft is an Outstanding Growth Stock

Investors often seek out growth stocks for their potential to deliver exceptional returns, thanks to their superior financial performance. These stocks tend to shine in the market, attracting significant attention. Nonetheless, finding a reliable growth stock can be challenging and comes with heightened risk and volatility. The stakes are high especially if a company's growth phase is plateauing, possibly leading to losses for investors betting on its future.

Evidence of Microsoft's Growth Potential

Despite the risks, assessing a company's real growth prospects is crucial. This involves looking at various indicators that go beyond elementary growth metrics. One company that is currently showing strong indicators of growth is Microsoft (MSFT). It boasts a favorable Growth Score and ranks highly, signaling potential for above-market performance.

Research has consistently shown stocks with stellar growth characteristics tend to beat the market, especially those with a high Growth Score and strong Zacks Rank. Let's delve into the three key reasons that make Microsoft a compelling growth stock today.

Robust Earnings Growth

Earnings growth stands out as perhaps the pivotal factor, with rapidly increasing profit levels being a magnet for most investors. Growth-oriented investors typically prefer companies with double-digit earnings growth, which tends to suggest a bright future and associated share price appreciation for the concerned company.

Microsoft has shown a historical EPS (Earnings Per Share) growth rate of 21.3%, but the focus should be on its forecasted growth. Expectations are set for the technology titan's EPS to inflate by 13.6% this year, overtaking the industry's predicted average growth of 13.3%.

Efficiency in Asset Utilization

Another metric to consider is the asset utilization ratio, which measures how efficiently a company uses its assets to achieve sales. Commonly overlooked, this ratio is however a vital cog in the machinery of growth investing. Microsoft exhibits an impressive S/TA ratio of 0.54, indicating that it earns $0.54 in sales for every dollar of assets. This is more efficient than the industry average of 0.47.

In addition to how efficiently sales are generated, the rate of sales growth is also significant. In this regard, Microsoft stands in good stead, with an expected sales growth of 14.4% this year—surpassing the industry's average projection of 9.1%.

Ongoing Positive Earnings Estimate Revisions

The strength of a stock is also reflected in the trend of its earnings estimate revisions. Indeed, there's a notable correlation between the positive revisions of earnings estimates and immediate stock price movements. Microsoft has enjoyed upward revisions in its current-year earnings estimates, a promising trend for investors.

The Zacks Consensus Estimate for Microsoft's earnings has been adjusted upwards by 0.1% over the past month. This revision contributes to Microsoft's Zacks Rank #2 and secures its Growth Score of A, further highlighting its desirability as a growth stock.

Combining these aspects, Microsoft emerges not just as a likely outperformer, but also as a solid choice for those investing with a growth strategy.

Microsoft, Growth, Stock