3 Reasons Why Adobe (ADBE) is a Top Growth Stock to Consider for Your Portfolio

Growth stocks are highly sought after by investors due to their potential for exceptional returns. However, finding the right growth stock can be a challenging task. In addition to volatility, these stocks carry above-average risk by their nature, and investors run the risk of losing money if the growth story is over or nearing its end. Fortunately, the Zacks Growth Style Score, which looks beyond traditional growth attributes to analyze a company's real growth prospects, can make it easier to identify cutting-edge growth stocks. One such stock currently recommended by our proprietary system is Adobe Systems (ADBE).

Earnings Growth

Earnings growth is crucial for growth investors, as surging profit levels are what most investors are after. Double-digit earnings growth is highly preferable, as it often indicates strong prospects for the company and potential stock price gains. While Adobe's historical EPS growth rate is 14%, investors should focus on projected growth. The company's EPS is expected to grow 11.8% this year, crushing the industry average of 11.5%.

Cash Flow Growth

Higher-than-average cash flow growth is more important for growth-oriented companies than for mature companies. That's because growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds. Right now, Adobe's year-over-year cash flow growth is 11.9%, which is higher than many of its peers and compares to the industry average of 9.4%. The company's annualized cash flow growth rate has been 13.6% over the past 3-5 years versus the industry average of 10.5%.

Promising Earnings Estimate Revisions

Beyond the metrics outlined above, investors should consider the trend in earnings estimate revisions. A positive trend is a plus here, as empirical research shows 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 Adobe, with the Zacks Consensus Estimate for the current year surging 2.1% over the past month.

Adobe as a Growth Stock

Adobe has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 due to positive earnings estimate revisions. This combination indicates that Adobe is a potential outperformer and a solid choice for growth investors.

In conclusion, while finding a great growth stock can be challenging, tools like the Zacks Growth Style Score can make the process easier. Adobe Systems (ADBE) is a great example of a cutting-edge growth stock that combines strong earnings and cash flow growth with promising earnings estimate revisions. If you're looking for a solid investment opportunity, consider adding Adobe to your portfolio.