3 Reasons Why Yum Brands is a Growth Stock You Can’t Ignore
Unlocking Growth Potential: Uncovering Hidden Gems with the Zacks Growth Style Score
Growth investors are always on the lookout for stocks that are poised to deliver exceptional financial growth, capturing the market’s attention and generating substantial returns. However, identifying a growth stock that can live up to its true potential is a challenging task. These securities are inherently volatile, carrying above-average risk by their very nature. Moreover, there is a high likelihood of losing from a stock whose growth story is actually over or nearing its end.
Fortunately, finding cutting-edge growth stocks has become easier with the aid of the Zacks Growth Style Score (part of the Zacks Style Scores system). This innovative tool goes beyond traditional growth attributes to analyze a company’s real growth prospects. By examining various factors, such as revenue and income growth, return on equity (ROE), and operating margin expansion, the Zacks Growth Style Score provides a comprehensive view of a company’s growth potential.
Yum Brands: A Top Pick for Growth Investors
Among the stocks currently recommended by our proprietary system is Yum Brands (YUM). This parent company of KFC, Taco Bell, and Pizza Hut has earned a favorable Growth Score and carries a top Zacks Rank. Research has consistently shown that stocks with the best growth features tend to outperform the market. Furthermore, when these stocks possess a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even more impressive.
There are numerous reasons why Yum Brands is an excellent growth pick at present. We have highlighted three crucial factors that make this stock an attractive choice:
Earnings Growth: A Key Indicator of Strong Prospects
Earnings growth is arguably the most important factor in growth investing, as stocks exhibiting exceptionally surging profit levels tend to attract significant attention from investors. For growth investors, double-digit earnings growth is definitely preferable and often serves as an indication of strong prospects (and stock price gains) for the company under consideration.
While Yum’s historical EPS growth rate stands at 9.9%, investors should focus on the projected growth. The company’s EPS is expected to grow 9.7% this year, surpassing the industry average, which calls for EPS growth of 6.6%. This impressive earnings growth will undoubtedly contribute significantly to the company’s overall performance.
Asset Utilization Ratio: A Crucial Indicator in Growth Investing
Asset utilization ratio, also known as sales-to-total-assets (S/TA) ratio, is often overlooked by investors but plays a significant role in growth investing. This metric showcases how efficiently a firm is utilizing its assets to generate sales. Right now, Yum has an S/TA ratio of 1.18, indicating that the company gets $1.18 in sales for each dollar in assets.
Comparing this to the industry average of 0.97, it can be stated 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. Fortunately, Yum is well-positioned from a sales growth perspective as well. The company’s sales are expected to grow 6.8% this year versus the industry average of 2.5%.
Promising Earnings Estimate Revisions: A Positive Trend
Superiority of a stock in terms of the metrics outlined above can be further validated by examining the trend in earnings estimate revisions. A positive trend is, of course, favorable here. Empirical research has demonstrated that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
The current-year earnings estimates for Yum have been revising upward. The Zacks Consensus Estimate for the current year has surged 0.1% over the past month. This positive trend in earnings estimate revisions serves as further evidence of the company’s strong prospects.
Conclusion
Yum Brands has not only earned a Growth Score of A based on various factors, including those discussed above, but it also carries a Zacks Rank #2 due to the positive earnings estimate revisions. This combination indicates that Yum is a potential outperformer and a solid choice for growth investors.
