Lloyds (LSE: LLOY) (NYSE: LYG.US) is a company that, at times over the past five years, I never thought I would ever describe as a growth stock.
This is because for most of this period, the outlook has seemed dire. Indeed, the credit crunch has hit the UK banking sector particularly hard and has left longstanding Lloyds shareholders like me with little in the way hope for higher profits.
However, what a difference a few years makes! Lloyds is now, in my view, one of the most exciting growth stocks around and, as such, I’m thinking of increasing my stake in the bank.
Indeed, earnings growth prospects point to far better times ahead for Lloyds, with the market expecting earnings per share (EPS) growth of 32% in 2014, with EPS expected to be as high as 6.75p per share.
To put this into perspective versus other growth stocks, ARM Holdings (which is often viewed as one of the most prominent UK growth stocks) is expected to grow EPS by 22% in 2014. This is roughly two-thirds of the growth expected to be generated by Lloyds, meaning that Lloyds has to be viewed as a true growth stock by the market.
Of course, as my fellow Fools will doubtless be well aware, growth stock status can mean improved sentiment and greater interest in the company. In other words, shares in growth stocks (especially during times of low growth such as the present time) can trade on generous premiums simply because they are delivering relatively high levels of growth.
In addition to the impressive growth prospects, I’m attracted to Lloyds because it has a relatively high beta. This means that shares should beat the index on the way up and fall faster on the way down, meaning my bullish outlook on the UK stock market would be well-matched with shares in Lloyds.
Of course, if the stock market falls then Lloyds should (in theory) underperform the wider index but I feel that even if there are short term dips, Lloyds remains well placed to deliver index-beating earnings growth. In turn, I think that the positive impact on the share price should come through over the medium to long term.
