Here is Why Growth Investors Should Buy Watts Water (WTS) Now

Growth stocks are attractive to many investors because above-average financial growth makes it easy for these stocks to attract market attention and produce exceptional returns. However, it is not easy to find a high-growth stock.

In addition to volatility, these stocks carry, by their very nature, above-average risk. Additionally, one could end up losing on a stock whose growth story has actually ended or is about to end.

However, it’s quite easy to find top growth stocks using the Zacks Growth Style Score (part of the Zacks Style Scores system), which goes beyond traditional growth attributes to analyze a company’s true growth prospects.

Watts Water (WTS) is one such stock that our proprietary system is currently recommending. The company not only has a favorable Growth Score, but also has a top-rated Zacks Rank.

Research shows that stocks with the best growth characteristics consistently beat the market. And returns are even better for stocks that have the combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy).

While there are many reasons why stocking this valve manufacturer for plumbing, heating, and water needs is a great choice for growth right now, we’ve highlighted three of the most important factors below:

Earnings growth is arguably the most important factor, as stocks with exceptionally high earnings levels tend to attract the attention of most investors. For growth investors, double-digit earnings growth is highly preferable, as it is often seen as an indication of strong prospects (and stock price gains) for the company under consideration.

Although Watts Water’s historical EPS growth rate is 18%, investors should actually focus on projected growth. The company’s EPS is expected to grow 10% this year, crushing the industry average of 8.7% EPS growth.

Although cash flow is the lifeblood of any business, above-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. Indeed, growing cash flow allows these companies to expand their businesses without relying on costly external funds.

Currently, year-over-year cash flow growth for Watts Water is 17.6%, which is higher than many of its peers. In fact, the rate compares to the industry average of 4.5%.

While investors should indeed consider current cash flow growth, it’s also worth taking a look at the historical rate to put the current reading into proper perspective. The company’s annualized cash flow growth rate has been 18.3% over the past 3-5 years, compared to an industry average of 9.9%.

Promising earnings estimate revisions

Beyond the metrics described above, investors should consider the trend of earnings estimate revisions. A positive trend is a plus here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Watts Water’s earnings estimates for the current year have been revised upward. The Zacks Consensus Estimate for the current year has jumped 0.3% over the past month.

While overall earnings estimate revisions made Watts Water a Zacks Rank #2 stock, it earned a Growth Score of B based on a number of factors, including those discussed above.

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

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

Research chief names ‘best choice to double down’

From thousands of stocks, 5 Zacks experts have each chosen their favorite to skyrocket +100% or more in the months to come. From these 5, Research Director Sheraz Mian chooses one that has the most explosive advantage of all.

This company targets the millennial and generation Z audience, generating nearly $1 billion in revenue last quarter alone. A recent setback makes now the perfect time to jump on board. Of course, not all of our elite picks are winners, but this one could far outperform Zacks’ previous stocks, which are expected to double like Nano’sX $TWTR Imaging which has climbed +129.6% in just over 9 months.

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Watts Water Technologies, Inc. (WTS): Free Stock Analysis Report

This article was originally published on Zacks Investment Research (zacks.com).

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