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Buy These 5 Stocks With Attractive Sales Growth Right Away
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A steady sales growth is the key to survival for a business in today’s highly competitive operating environment. The companies that put emphasis on sales management have a competitive edge, as strong sales usually translate to higher profitability.
Stable or declining sales growth indicates obstacles at the company, which will limit scope for sustained growth going forward. Stagnant companies may generate profits for a short period, but they do not ensure enough growth to attract new investors.
Revenues are often more closely monitored than earnings when assessing the growth of a business. It must be kept in mind that in cases when companies incur a loss, although briefly, they are valued on their revenues, as top-line growth (or decline) is usually 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 stock valuation. This metric’s importance further lies in the fact that management has limited opportunities to manipulate revenues unlike earnings.
Focusing solely on sales growth is, however, not enough. A consideration of a company’s cash position along with its sales number can be a more dependable strategy. Substantial cash in hand and a steady cash flow give a company more flexibility with respect to business decisions and investments.
Selecting Winning Stocks
In order to shortlist stocks with impressive sales growth and 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. Hence, we have 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.
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 that the company is spending wisely and is in all likelihood profitable.
Here are five of the 24 stocks that qualified the screening:
Headquartered in Chicago, IL, LKQ Corporation (LKQ - Free Report) is one of the leading providers of replacement parts, components and systems that are required to repair and maintain vehicles. Its expected sales growth rate for 2021 is 11.4%. The stock currently sports a Zacks Rank #1.
Based in Houston, TX, LyondellBasell Industries N.V. (LYB - Free Report) is among the leading plastics, chemical and refining companies globally. The company’s expected sales growth rate for 2021 is 54.3%. It currently sports a Zacks Rank #1.
Microchip Technology Inc. (MCHP - Free Report) develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. This Chandler, AZ-based company’s sales are expected to grow rate of 20.8% for fiscal 2022. The stock carries a Zacks Rank #2 at present.
Fairfield, OH-based Cincinnati Financial Corporation (CINF - Free Report) markets property and casualty insurance. Its expected sales growth rate for 2021 is 17.9%. The stock sports a Zacks Rank #1 at present.
Headquartered in Chicago, IL, TransUnion (TRU - Free Report) is one of the leading global providers of risk and information solutions to businesses and consumers. Its expected sales growth rate for 2021 is 12.6%. The stock carries a Zacks Rank #2 at present.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
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Buy These 5 Stocks With Attractive Sales Growth Right Away
A steady sales growth is the key to survival for a business in today’s highly competitive operating environment. The companies that put emphasis on sales management have a competitive edge, as strong sales usually translate to higher profitability.
Stable or declining sales growth indicates obstacles at the company, which will limit scope for sustained growth going forward. Stagnant companies may generate profits for a short period, but they do not ensure enough growth to attract new investors.
Revenues are often more closely monitored than earnings when assessing the growth of a business. It must be kept in mind that in cases when companies incur a loss, although briefly, they are valued on their revenues, as top-line growth (or decline) is usually 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 stock valuation. This metric’s importance further lies in the fact that management has limited opportunities to manipulate revenues unlike earnings.
Focusing solely on sales growth is, however, not enough. A consideration of a company’s cash position along with its sales number can be a more dependable strategy. Substantial cash in hand and a steady cash flow give a company more flexibility with respect to business decisions and investments.
Selecting Winning Stocks
In order to shortlist stocks with impressive sales growth and 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. Hence, we have 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.
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 that 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 the complete list of today’s Zacks #1 Rank stocks here.
Here are five of the 24 stocks that qualified the screening:
Headquartered in Chicago, IL, LKQ Corporation (LKQ - Free Report) is one of the leading providers of replacement parts, components and systems that are required to repair and maintain vehicles. Its expected sales growth rate for 2021 is 11.4%. The stock currently sports a Zacks Rank #1.
Based in Houston, TX, LyondellBasell Industries N.V. (LYB - Free Report) is among the leading plastics, chemical and refining companies globally. The company’s expected sales growth rate for 2021 is 54.3%. It currently sports a Zacks Rank #1.
Microchip Technology Inc. (MCHP - Free Report) develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. This Chandler, AZ-based company’s sales are expected to grow rate of 20.8% for fiscal 2022. The stock carries a Zacks Rank #2 at present.
Fairfield, OH-based Cincinnati Financial Corporation (CINF - Free Report) markets property and casualty insurance. Its expected sales growth rate for 2021 is 17.9%. The stock sports a Zacks Rank #1 at present.
Headquartered in Chicago, IL, TransUnion (TRU - Free Report) is one of the leading global providers of risk and information solutions to businesses and consumers. Its expected sales growth rate for 2021 is 12.6%. The stock carries a Zacks Rank #2 at present.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance