EPS growth is important for evaluating a company’s health and valuation. The rate of EPS growth can help determine long-term performance. High EPS growth stocks typically tend to see similar gains in their share price over time. Companies need profits to pay dividends and buy back shares after all, which are important elements for investors.
Growth stocks generally have growing EPS or expected bottom-line growth. Some artificial intelligence (AI)- driven stocks have demonstrated this. Nvidia (NASDAQ:NVDA) is leading the pack with over 790% EPS growth in the last year!
Historically, average EPS growth ranges between 5-8% annually, though it varies from year to year. Finding consistent bottom-line growth for long-term investors may secure strong returns over the next five years.
While some AI companies saw triple-digit one-year growth, maintaining that remains questionable. For example, Nvidia’s fiscal 2023 EPS fell 55%. Yet, due to compound growth effects, a 15% annual compound growth rate (CAGR) can double income over five years without requiring 100% EPS growth each year.
According to analysts, several high EPS growth stocks have consistently reported increases and have upside potential over the next five years. These provide opportunities for traders seeking growth trajectories.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) is a leading online payment processor that weathered the dot-com boom. While no longer considered a tech company, it has transitioned to offering financial services. Despite this change, PayPal maintains high EPS growth characteristics and makes a good candidate as one of the high EPS growth stocks to watch over the next five years.
Over the past year, PayPal’s EPS has increased approximately 18% per year on average, aided by 14% revenue growth over the past five years. This allowed the company to achieve a 164% average cash conversion ratio over the former period, accumulating $9.7 billion in cash on hand.
While its business fundamentals remain strong, PayPal stock declined 13% in the last year as investors view it more like a traditional financial institution than a fast-growing tech firm. This positions PayPal with a relatively low price-to-earnings (P/E) ratio of 14.7x, which is on par with regional U.S. banks. However, analysts have become increasingly positive on the OG of online payment processors, with the vast majority now recommending it as a buy.
Academy Sports and Outdoors (ASO)
Academy Sports and Outdoors (NASDAQ:ASO) is a sporting goods retailer with strong financial performance despite going public during the pandemic. The company has achieved high EPS growth stock status through 90% average annual EPS increases over the last five years. This impressive growth occurred as Academy gained market share within the retail sector.
Although it trades 20% lower year-to-date (YTD) after missing EPS estimates last quarter, it plans to continue its successful strategy. The company intends to open 160-180 new store locations in the next five years, expanding its total by 64% during that period. With revenues aligned with forecasts and dividends covered by cash flow and profit, even though at a 21% growth, ASO may soon begin a new 5-year trend.
In addition to solid growth, Academy Sports and Outdoors appears attractively priced relative to industry peers. ASO stock currently trades at a P/E ratio of 8.1x its earnings, notably below the apparel sector average of 16.9x. Analyst coverage also remains largely positive, with 16 of 19 covering firms recommending the stock as a buy.
Boise Cascade (BCC)
Boise Cascade (NYSE:BCC) is a land and timber company that owns significant timberland holdings to support its wood production operations. Demand for wood in diverse applications has remained steady and is projected to increase substantially over the coming decades. According to the WHO, global initiatives to achieve net zero carbon emissions and population growth are expected to quadruple timber demand by 2050.
Despite recent headwinds in the U.S. housing industry, the company has delivered strong 88% annual EPS growth over the last five years. With interest rates projected to fall over the medium-to-long term, housing timber demand is anticipated to rebound as the housing sector rebounds.
While Boise stock price has increased over 360% in the past five years, its P/E ratio remains attractive at just 9.6x, a significant discount to the benchmark index’s 28.4x ratio. Analyst views on the stock are mixed, with the majority rating it a hold. However, one analyst has given an enthusiastic, strong buy recommendation due to the company’s position as one of the high EPS growth stocks.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.