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Solid Sales Growth Makes These 5 Stocks Worth Buying Now
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Steady sales growth holds the key to survival in a competitive operating backdrop. Yet, investors often ignore sales growth as a reliable metric when it comes to picking stocks. This might be because of their preconceived notion that a company’s stock price is typically sensitive to its earnings momentum.
Nevertheless, it’s worth keeping in mind that when companies incur losses, albeit temporarily, they are valued based on their revenues, as top-line growth (or decline) is usually an indicator of a company’s prospects.
A company can improve earnings by resorting to expense control measures while maintaining stable revenues. However, sustainable bottom-line growth invariably requires higher revenues.
Therefore, the Price-to-Sales (P/S) ratio can be an apt metric for stock valuation. The importance of this metric lies in the fact that management has limited scope to manipulate revenues unlike earnings.
While sales growth provides investors an understanding of product demand and pricing power, it doesn’t reflect whether the company is operating efficiently. A huge sales number does not necessarily convert into profits.
Hence, a consideration of a company’s cash position along with its sales can be a more dependable strategy. Significant cash in hand and steady cash flow provide a company with more flexibility concerning business decisions and investments.
Selecting the 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 17 stocks that qualified the screening:
Headquartered in Irving, TX, Nexstar Media is a television broadcasting and digital media company. NXST focuses on the acquisition, development and operation of television stations and interactive community websites and digital media services in the United States.
Nexstar Media’s expected sales growth rate for 2022 is 13.2%. The stock currently carries a Zacks Rank #2.
King of Prussia, PA-based Universal Health owns and operates (through its subsidiaries) acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. UHS through its subsidiaries operates 350 inpatient acute care hospitals and behavioral health facilities and 37 outpatient and other facilities located across 37 states.
Universal Health’s expected sales growth rate for 2022 is 4.2%. It currently carries a Zacks Rank #2.
Based in San Francisco, CA, salesforce.com is the leading provider of on-demand Customer Relationship Management software. CRM has leveraged its expertise in on-demand software to increase the scale of operations.
salesforce.com’s sales are expected to improve 20.3% for fiscal 2023. The stock sports a Zacks Rank #1 at present.
Grainger is a broad line, business-to-business distributor of maintenance, repair and operating products and services. Lake Forest, IL-based GWW operates primarily in North America, Japan and the U.K.
Grainger’s expected sales growth rate for 2022 is 7.5%. The stock carries a Zacks Rank #2 at present.
Marvell is a fabless designer, developer and marketer of analog, mixed-signal and digital signal processing integrated circuits. MRVL operates in Bermuda, China, Germany, Japan, Korea, Taiwan, the U.K., and the United States.
Marvell’s expected sales growth rate for fiscal 2023 is 33%. The stock sports a Zacks Rank #1 currently.
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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Solid Sales Growth Makes These 5 Stocks Worth Buying Now
Steady sales growth holds the key to survival in a competitive operating backdrop. Yet, investors often ignore sales growth as a reliable metric when it comes to picking stocks. This might be because of their preconceived notion that a company’s stock price is typically sensitive to its earnings momentum.
Nevertheless, it’s worth keeping in mind that when companies incur losses, albeit temporarily, they are valued based on their revenues, as top-line growth (or decline) is usually an indicator of a company’s prospects.
With regard to this, stocks like Nexstar Media Group Inc. (NXST - Free Report) , Universal Health Services Inc. (UHS - Free Report) , salesforce.com (CRM - Free Report) , W.W. Grainger Inc. (GWW - Free Report) and Marvell Technology (MRVL - Free Report) are worth betting on.
A company can improve earnings by resorting to expense control measures while maintaining stable revenues. However, sustainable bottom-line growth invariably requires higher revenues.
Therefore, the Price-to-Sales (P/S) ratio can be an apt metric for stock valuation. The importance of this metric lies in the fact that management has limited scope to manipulate revenues unlike earnings.
While sales growth provides investors an understanding of product demand and pricing power, it doesn’t reflect whether the company is operating efficiently. A huge sales number does not necessarily convert into profits.
Hence, a consideration of a company’s cash position along with its sales can be a more dependable strategy. Significant cash in hand and steady cash flow provide a company with more flexibility concerning business decisions and investments.
Selecting the 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 17 stocks that qualified the screening:
Headquartered in Irving, TX, Nexstar Media is a television broadcasting and digital media company. NXST focuses on the acquisition, development and operation of television stations and interactive community websites and digital media services in the United States.
Nexstar Media’s expected sales growth rate for 2022 is 13.2%. The stock currently carries a Zacks Rank #2.
King of Prussia, PA-based Universal Health owns and operates (through its subsidiaries) acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. UHS through its subsidiaries operates 350 inpatient acute care hospitals and behavioral health facilities and 37 outpatient and other facilities located across 37 states.
Universal Health’s expected sales growth rate for 2022 is 4.2%. It currently carries a Zacks Rank #2.
Based in San Francisco, CA, salesforce.com is the leading provider of on-demand Customer Relationship Management software. CRM has leveraged its expertise in on-demand software to increase the scale of operations.
salesforce.com’s sales are expected to improve 20.3% for fiscal 2023. The stock sports a Zacks Rank #1 at present.
Grainger is a broad line, business-to-business distributor of maintenance, repair and operating products and services. Lake Forest, IL-based GWW operates primarily in North America, Japan and the U.K.
Grainger’s expected sales growth rate for 2022 is 7.5%. The stock carries a Zacks Rank #2 at present.
Marvell is a fabless designer, developer and marketer of analog, mixed-signal and digital signal processing integrated circuits. MRVL operates in Bermuda, China, Germany, Japan, Korea, Taiwan, the U.K., and the United States.
Marvell’s expected sales growth rate for fiscal 2023 is 33%. The stock sports a Zacks Rank #1 currently.
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