Construction Partners (ROAD) Stands Out as a Top Growth Stock: Here Are 3 Key Reasons

Why Growth Stocks Appeal to Investors

Many investors are drawn to growth stocks because their strong financial performance often leads to increased attention in the market and the potential for impressive returns. However, identifying truly outstanding growth stocks can be quite challenging.

This difficulty arises because these types of stocks are typically associated with higher risk and greater price swings. Investing in a company whose growth phase has ended or is nearing completion can result in substantial losses.

Fortunately, the Zacks Growth Style Score—part of the Zacks Style Scores framework—goes beyond standard growth metrics to assess a company’s genuine growth potential, making it easier to spot promising opportunities.

Currently, Construction Partners (ROAD) stands out as a recommended pick by this system. The company not only boasts a strong Growth Score but also holds a top Zacks Rank.

Research indicates that stocks with robust growth characteristics tend to outperform the broader market. Those that combine a high Growth Score (A or B) with a Zacks Rank of #1 (Strong Buy) or #2 (Buy) have historically delivered even better results.

Below are three key reasons why this road and highway construction firm is considered an excellent growth candidate at this time.

Earnings Expansion

For most investors, rising earnings are the primary goal, and double-digit earnings growth is especially attractive to those seeking growth. Such performance is often seen as a sign of a company’s strong future prospects and potential share price appreciation.

While Construction Partners has achieved a historical earnings per share (EPS) growth rate of 48.2%, the focus should be on future projections. The company’s EPS is forecasted to climb by 29.8% this year, far outpacing the industry’s expected growth of 8.9%.

Cash Flow Acceleration

Cash flow is essential for any business, but rapid cash flow growth is particularly valuable for companies focused on expansion. Ample cash reserves allow these firms to invest in new projects without relying on costly external financing.

At present, Construction Partners has achieved a year-over-year cash flow growth rate of 67.8%, which is significantly higher than most competitors. By comparison, the industry average stands at just 3.7%.

While current cash flow growth is crucial, reviewing historical trends provides additional context. Over the past three to five years, Construction Partners has maintained an annualized cash flow growth rate of 28%, compared to the industry’s 11.8% average.

Upward Earnings Estimate Revisions

Strong performance in the above metrics is further supported by positive trends in earnings estimate revisions. A consistent pattern of upward revisions is a favorable indicator, as research shows a close link between these trends and short-term stock price movements.

Recently, analysts have raised their earnings estimates for Construction Partners for the current year. The Zacks Consensus Estimate has increased by 1.9% over the past month.

Summary

Construction Partners has earned a Growth Score of B, reflecting several positive factors, including those discussed above. The company also holds a Zacks Rank #2, thanks in part to its upward earnings estimate revisions.

This combination suggests that Construction Partners is well-positioned to outperform and is a compelling option for growth-focused investors.

Top Analyst’s “Best Pick to Double”

Out of thousands of stocks, five Zacks experts have each selected their top choice for potential gains of 100% or more in the coming months. Among these, Director of Research Sheraz Mian has identified one stock with the greatest upside potential.

This company, which targets millennial and Gen Z consumers, generated nearly $1 billion in revenue last quarter. A recent dip in its share price could present an attractive entry point. While not every top pick achieves extraordinary results, this one could surpass previous Zacks selections like Nano-X Imaging, which soared 129.6% in just over nine months.

Looking for the latest stock recommendations from Zacks Investment Research? Download the “7 Best Stocks for the Next 30 Days” at no cost.

This article was first published by Zacks Investment Research (zacks.com).

Zacks Investment Research