Shouldn't Sales Growth Be Better Than Earnings Growth?

Stocks highlighted in this article are: Axsys Technologies, Inc. (AXYS), The Buckle, Inc. (BKE - Snapshot Report), Dolby Laboratories, Inc. (DLB - Snapshot Report), Universal Display Corp. (PANL - Snapshot Report) and Perfect World Co., Ltd. (PWRD - Snapshot Report).

With earnings season winding down, it's never too early to start planning for next quarter's earnings.

While quarterly earnings on a year-over-year basis are down sharply, roughly two-thirds of the companies that have so far reported beat expectations.

Simply put, if you didn't screw up the quarter or paint too negative a picture going forward, then you were rewarded.

However, stocks got punished if they couldn't live up to the market's earnings expectations - especially on a sequential basis after the previous quarter's ugly numbers.

But coming in with 'not that bad' numbers won’t cut it forever.

Since many companies hit their targets and then some due to cost cutting and other means, they're now going to have to see sales ride to the rescue, because sales is still the most important driver. Not at the expense of margins of course. But sales is the lifeblood of a company and that needs to rise.

Eventually, if your sales growth isn't rising, neither will your earnings.

So in this week's screen, I'm looking for companies where sales growth increased more than earnings growth.

The parameters are:

• Quarterly Sales Growth > 0
  (Positive sales growth, qtr. over qtr.)

• Quarterly EPS Growth > 0
  (Positive EPS growth, qtr. over qtr.)

• Quarterly Sales Growth (Q0/Q-1) > Quarterly EPS Growth (Q0/Q-1)
  (Looking for stocks whose sales growth increased more than their earnings growth. This shows top line growth with less chance for gimmicks at earnings time.)

• Last Quarter's Sales Surprise >= 0
  (Topping expectations is always good ...)

• Last Quarter's EPS Surprise >= 0
  (... and of course for the bottom line as well.)

• Zacks Rank (No Sells or Strong Sells allowed.)

• Price >= 5

• Volume (Avg. 20-day) >= 100,000

Note: for those building this screen on your own in the Research Wizard, the 'Sales Growth > EPS Growth' item is done in the Calculation Expression feature. Try creating it on your own or copy and paste this into the program: i578 > i519.

(i578 is the Quarterly Sales Growth item and i519 is the Quarterly EPS Growth item.)

There were literally only 27 companies that met these strict criteria. Here are 5 of them:

AXYS Axsys Technologies, Inc.
BKE - Snapshot Report The Buckle, Inc.
DLB - Snapshot Report Dolby Laboratories, Inc.
PANL - Snapshot Report Universal Display Corp.
PWRD - Snapshot Report Perfect World Co., Ltd.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Read the full analyst report on PANL

Read the full analyst report on DLB

Read the full analyst report on BKE

Read the full analyst report on PWRD