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A number of factors influence investment decisions, particularly when it comes to picking stocks. While investors with a high-risk appetite looking for higher returns seek sophisticated and complex strategies, conventional investment strategies that are based on key fundamentals are largely deployed by a class of investors having a low-risk appetite.
Conventional strategies are not only safe and sound, but they are also worthwhile in bearish markets. We have picked one such strategy that is focused on the sales growth of a company.
Sales Growth – A Key Financial Indicator
In the current market scenario with changing customer preferences and habits, evolving needs, demographic changes and an extremely competitive environment, maintaining a steady sales growth is the key to survival for any business. Companies are always looking out for ways to boost their marketing initiatives to drive sales.
Notably, revenues are often more closely monitored than earnings when assessing the growth of a business. It’s worth keeping in mind that in cases when companies incur a loss, albeit transitorily, they are valued on their revenues, as top-line growth (or decline) is usually an indicator of a company’s future earnings performance.
Hence, the Price-to-Sales (P/S) ratio can turn out to be an appropriate metric for stock valuation. It remains a key stock selection criteria keeping in mind that management usually has limited opportunities to tamper with revenues as they can with earnings. Thus, the P/S ratio is subject to lesser manipulation than the Price-to-Earnings ratio.
Sales growth in isolation is, however, not a sufficient criterion for 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 a steady cash flow give a company more flexibility with respect to business decisions and investments.
Invest Like a Pro
A careful selection of stocks considering certain factors should help investors to not only build wealth but beat the market as well.
In order to shortlist stocks that have impressive sales growth along with a high cash balance, we added 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow greater than $500 million as our primary screening parameters.
However, sales growth and cash strength are not the absolute criteria for selecting stocks. So, we added a few other factors to arrive at a winning strategy.
Price-to-Sales (P/S) Ratio less than X-Industry: This metric measures 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: Northward estimate revision has often been observed to trigger an increase in the stock price.
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 being translated into profits and the company is not hoarding cash. 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.
Here are five of the eight stocks that made it through the screen:
Laboratory Corp. of America Holdings (LH - Free Report) is a leading healthcare diagnostics company, providing clinical laboratory services and drug development support. This Burlington, NC-based company currently has a long-term expected EPS growth rate of 10.2% and carries a Zacks Rank #2.
Synopsys Inc. (SNPS - Free Report) is one of the major suppliers of electronic design automation software to the global electronics industry. The Mountain View, CA-based firm has a long-term expected EPS (earnings per share) growth rate of 9% and carries a Zacks Rank #1.
Intel Corporation (INTC - Free Report) , one of the world’s leading producers of semiconductor components, currently has a long-term expected EPS growth rate of 7.4%. This Santa Clara, CA-based company holds a Zacks Rank #2.
VMware, Inc. is a Palo Alto, CA-based company engaged in providing virtualization and cloud infrastructure solutions in the U.S. and worldwide. The company has a long-term expected EPS growth rate of 12.9% with a Zacks Rank #2.
Euronet Worldwide, Inc. (EEFT - Free Report) is a major player in providing payment and transaction processing solutions to clients including financial institutions, retailers and service providers worldwide. This Leawood, KS-based company has a long-term expected EPS growth rate of 14.8% with a Zacks Rank #2.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Stocks with Incredible Sales Growth to Buy Now
A number of factors influence investment decisions, particularly when it comes to picking stocks. While investors with a high-risk appetite looking for higher returns seek sophisticated and complex strategies, conventional investment strategies that are based on key fundamentals are largely deployed by a class of investors having a low-risk appetite.
Conventional strategies are not only safe and sound, but they are also worthwhile in bearish markets. We have picked one such strategy that is focused on the sales growth of a company.
Sales Growth – A Key Financial Indicator
In the current market scenario with changing customer preferences and habits, evolving needs, demographic changes and an extremely competitive environment, maintaining a steady sales growth is the key to survival for any business. Companies are always looking out for ways to boost their marketing initiatives to drive sales.
Notably, revenues are often more closely monitored than earnings when assessing the growth of a business. It’s worth keeping in mind that in cases when companies incur a loss, albeit transitorily, they are valued on their revenues, as top-line growth (or decline) is usually an indicator of a company’s future earnings performance.
Hence, the Price-to-Sales (P/S) ratio can turn out to be an appropriate metric for stock valuation. It remains a key stock selection criteria keeping in mind that management usually has limited opportunities to tamper with revenues as they can with earnings. Thus, the P/S ratio is subject to lesser manipulation than the Price-to-Earnings ratio.
Sales growth in isolation is, however, not a sufficient criterion for 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 a steady cash flow give a company more flexibility with respect to business decisions and investments.
Invest Like a Pro
A careful selection of stocks considering certain factors should help investors to not only build wealth but beat the market as well.
In order to shortlist stocks that have impressive sales growth along with a high cash balance, we added 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow greater than $500 million as our primary screening parameters.
However, sales growth and cash strength are not the absolute criteria for selecting stocks. So, we added a few other factors to arrive at a winning strategy.
Price-to-Sales (P/S) Ratio less than X-Industry: This metric measures 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: Northward estimate revision has often been observed to trigger an increase in the stock price.
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 being translated into profits and the company is not hoarding cash. 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.
Here are five of the eight stocks that made it through the screen:
Laboratory Corp. of America Holdings (LH - Free Report) is a leading healthcare diagnostics company, providing clinical laboratory services and drug development support. This Burlington, NC-based company currently has a long-term expected EPS growth rate of 10.2% and carries a Zacks Rank #2.
Synopsys Inc. (SNPS - Free Report) is one of the major suppliers of electronic design automation software to the global electronics industry. The Mountain View, CA-based firm has a long-term expected EPS (earnings per share) growth rate of 9% and carries a Zacks Rank #1.
Intel Corporation (INTC - Free Report) , one of the world’s leading producers of semiconductor components, currently has a long-term expected EPS growth rate of 7.4%. This Santa Clara, CA-based company holds a Zacks Rank #2.
VMware, Inc. is a Palo Alto, CA-based company engaged in providing virtualization and cloud infrastructure solutions in the U.S. and worldwide. The company has a long-term expected EPS growth rate of 12.9% with a Zacks Rank #2.
Euronet Worldwide, Inc. (EEFT - Free Report) is a major player in providing payment and transaction processing solutions to clients including financial institutions, retailers and service providers worldwide. This Leawood, KS-based company has a long-term expected EPS growth rate of 14.8% with a Zacks Rank #2.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »