Dj Phibro Animal Health: Todd Armstrong, Current Vice President Of The Us Ruminant Business, Will Be President, North American Region

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 great growth stock is not easy at all.

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, the task of finding cutting-edge growth stocks is made easy with the help of the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company's real growth prospects.

Our proprietary system currently recommends Phibro Animal Health (PAHC) as one such stock. This company not only has a favorable Growth Score, but also carries a top Zacks Rank.

Studies have shown that stocks with the best growth features consistently outperform 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 maker of animal health products and nutritional supplements 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 Phibro is 0.9%, investors should actually focus on the projected growth. The company's EPS is expected to grow 30.7% this year, crushing the industry average, which calls for EPS growth of 20%.

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, Phibro has an S/TA ratio of 1.07, which means that the company gets $1.07 in sales for each dollar in assets. Comparing this to the industry average of 0.61, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Phibro looks attractive from a sales growth perspective as well. The company's sales are expected to grow 17.2% this year versus the industry average of 0.7%.

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.

There have been upward revisions in current-year earnings estimates for Phibro. The Zacks Consensus Estimate for the current year has surged 4% over the past month.

Bottom Line

Phibro has not only earned a Growth Score of B 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.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

This combination indicates that Phibro is a potential outperformer and a solid choice for growth investors.

Zacks Investment Research

Have you been paying attention to shares of Phibro Animal Health (PAHC)? Shares have been on the move with the stock up 5.2% over the past month. The stock hit a new 52-week high of $25.61 in the previous session. Phibro Animal Health has gained 120.6% since the start of the year compared to the 4.7% move for the Zacks Medical sector and the 15% return for the Zacks Medical - Products industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on November 6, 2024, Phibro reported EPS of $0.35 versus consensus estimate of $0.23 while it missed the consensus revenue estimate by 6.25%.

For the current fiscal year, Phibro is expected to post earnings of $1.55 per share on $1.08 billion in revenues. This represents a 31.09% change in EPS on a 6.49% change in revenues. For the next fiscal year, the company is expected to earn $1.89 per share on $1.39 billion in revenues. This represents a year-over-year change of 21.79% and 28.16%, respectively.

Valuation Metrics

Phibro may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Phibro has a Value Score of A. The stock's Growth and Momentum Scores are B and D, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 16.4X current fiscal year EPS estimates, which is not in-line with the peer industry average of 24.8X. On a trailing cash flow basis, the stock currently trades at 12.1X versus its peer group's average of 12X. Additionally, the stock has a PEG ratio of 0.68. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Phibro currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Phibro passes the test. Thus, it seems as though Phibro shares could still be poised for more gains ahead.

How Does PAHC Stack Up to the Competition?

Shares of PAHC have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is OraSure Technologies, Inc. (OSUR). OSUR has a Zacks Rank of # 2 (Buy) and a Value Score of A, a Growth Score of D, and a Momentum Score of D.

Earnings were strong last quarter. OraSure Technologies, Inc. beat our consensus estimate by 75%, and for the current fiscal year, OSUR is expected to post earnings of -$0.05 per share on revenue of $185.4 million.

Shares of OraSure Technologies, Inc. have gained 4.7% over the past month, and currently trade at a forward P/E of 90.86X and a P/CF of 3.16X.

The Medical - Products industry is in the top 34% of all the industries we have in our universe, so it looks like there are some nice tailwinds for PAHC and OSUR, even beyond their own solid fundamental situation.

Zacks Investment Research