5 Stocks With Solid Sales Growth To Buy Amid Choppy Markets

With markets in correction mode, it’s very difficult to select stocks that will offer steady returns going forward. Investors may apply complex investment strategies with an aim to book higher returns but may not be rewarded with the desired returns.

Thus, at present, investors should use conventional strategies, based on key fundamentals, to select stocks. One such strategy is focus on sales growth.

Why Sales Growth?

Investors often fail to keep an eye on sales growth while picking stocks, as a company’s share price is usually sensitive to its earnings momentum. Nonetheless, earnings are not the be-all and end-all in the sense that books can be easily manipulated. That’s why sales should always be taken into consideration.

Sales growth is actually an important indicator of a company's health and ability to sustain its business. It offers investors an insight into product demand and pricing power. The main advantage is that the sales figure is generally not manipulated and is less volatile than earnings.

Without some revenue growth, bottom-line improvement may not be sustainable in the longer term. While a company can show earnings strength by reducing expenses, a sustainable bottom-line recovery usually requires sales growth.

Focusing exclusively on sales growth is not enough though. A healthy sales growth rate is certainly a positive indicator for picking good stocks, but it does not ensure profits. So, taking into consideration a company’s cash position along with its sales number can prove to be a more dependable strategy.

Substantial cash on hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments. Cash also enables a company to endure market downturns. Most importantly, a sufficient cash position indicates that revenues are being channelized in the right direction.

Selecting the Winning Stocks

In order to shortlist stocks that have witnessed impressive sales growth along with a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow greater than $500 million as our main screening parameters.

But sales growth and cash strength are not the absolute criteria for selecting stocks. So, we added certain other factors to arrive at a winning strategy.

Price-to-Sales (P/S) Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.

% Change F1 Sales Estimate Revisions (4 Weeks) greater than X-Industry: Better-than-industry estimate revision has often been seen to trigger an increase in the stock price.

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Operating Margin (Average Last 5 years) greater than 5%: Operating margin measures how much every dollar of a company's sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs, an optimal situation for the company.

Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means the company is spending wisely and is in all likelihood profitable.

Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective of the market environment. You can see Zacks Investment Research

Written By: Zacks Investment Research