5 Stocks With Strong Sales Growth Worth Investing In Now
Zacks Investment Research | Jun 28, 2019 08:33AM ET
Sales growth is a major financial indicator, which is often neglected by investors while searching for a profitable investment strategy. As the present market scenario is marked by changing customer preferences and habits, evolving needs, demographic changes and an extremely competitive environment, maintaining stable sales growth is vital for any company.
Companies are always looking for ways to boost revenues. Notably, revenues are often more closely monitored than earnings when assessing growth potential of a business.
It’s worth keeping in mind that in cases when companies incur a loss, albeit temporarily, they are valued on the basis of revenues, as top-line growth (or decline) is an indicator of a company’s future earnings performance.
So, the Price-to-Sales (P/S) ratio can turn out to be an appropriate metric for valuing any company’s worth. It remains a major stock selection criterion as management usually has limited opportunities to manipulate revenues, unlike earnings.
Sales growth in isolation, however, does not assure success. A consideration of a company’s cash position along with its sales number can be a more dependable strategy. Substantial cash in hand and steady cash flow give a company more flexibility with respect to business decisions and investments.
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 more 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.
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 (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five 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 it.
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.
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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
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