Is SPS Commerce (SPSC) a Solid Growth Stock? 3 Reasons to Think Yes

Growth investors are always on the lookout for stocks that exhibit above-average financial performance, as these stocks often capture the attention of the market and provide substantial returns. However, identifying a solid growth stock can be challenging.

Growth stocks inherently come with higher risks and greater volatility. If a company's growth trajectory is slowing down or coming to an end, investing in such stocks can result in notable losses.

Fortunately, utilizing tools like the Zacks Growth Style Score, investors can simplify the search for promising growth stocks. This system evaluates not just traditional growth metrics, but also a company's genuine potential for growth.

Currently, SPS Commerce (SPSC) stands out as a recommended stock by this system. It not only has a good Growth Score but also holds a top Zacks Rank.

Investing in stocks that display exceptional growth characteristics has historically been linked to better performance compared to the overall market. In fact, stocks that feature a Growth Score of A or B along with a Zacks Rank of 1 (Strong Buy) or 2 (Buy) tend to yield even greater returns.

Earnings Growth

Earnings growth is a critical indicator for investors, as rising profit levels are a primary goal. For those focused on growth, double-digit earnings growth is particularly attractive, suggesting robust future prospects and potential stock price increases.

SPS Commerce boasts a historical earnings per share (EPS) growth rate of 19.7%. However, it's more important to consider projected growth, as this number indicates future performance. The company's EPS is expected to rise by 19.4% this year, significantly outpacing the industry average of 7.4%.

Cash Flow Growth

Cash flow is essential for any business, but high cash flow growth is especially crucial for growth-focused companies. Robust cash accumulation allows these companies to launch new projects without resorting to costly external financing.

Currently, SPS Commerce enjoys a year-over-year cash flow growth rate of 20.6%, surpassing many of its competitors. This figure stands in contrast to the industry average of 9.3%.

While current cash flow growth is vital, it's also beneficial to review historical data for context. Over the past three to five years, SPS Commerce's annualized cash flow growth rate has been an impressive 26.6%, compared to the industry average of 10.8%.

Promising Earnings Estimate Revisions

A stock's performance can often be validated by the trend in its earnings estimate revisions. Generally, a positive revision trend signals favorable prospects. Research indicates a strong correlation between these revisions and the stock's short-term price movements.

For SPS Commerce, there has been a positive shift in current-year earnings estimates. Over the past month, the consensus estimate for the company's earnings has increased by 2.2%.

Bottom Line

The upward revisions in earnings estimates have propelled SPS Commerce to a Zacks Rank of #1. Additionally, it has secured a Growth Score of B due to multiple positive factors.

This combination of favorable metrics positions SPS Commerce as a promising candidate for growth investors looking to enhance their portfolios.

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