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Solid Sales Growth Makes These 5 Stocks Attractive Picks
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When it comes to picking stocks, investors are often beguiled into undertaking complex investment strategies in a bid to book higher returns. However, with ever changing market dynamics, this may not yield the desired results every time. Hence, using conventional strategies, based on key fundamentals, to choose stocks is always a wise decision.
Conventional strategies are not only safe and sound, but are also worthwhile in bearish markets. We have picked one such strategy that is focused on sales growth.
Sales Growth – A Key Metric
Maintaining steady sales growth is the key to survival for any business, particularly amid the current market scenario, which is characterized by changing customer preferences, evolving needs, demographic changes and an extremely competitive environment. Sales growth as such remains an important measure for any corporate house, as it is vital to growth projections and strategic decision making.
It’s worth keeping in mind that when companies incur a loss for a temporary period, they are valued on their revenues, as sales growth (or decline) is usually an indicator of a company’s future earnings performance. Notably, in contrast with price to earnings and price to book value ratios, which can turn negative and cease to be relevant, the price-to-sales (P/S) ratio is available even for firms that have hit choppy waters.
Further, profits and book value are largely influenced by several factors including accounting decisions tied with depreciation, significant charges and inventory. However, management has limited opportunities to manipulate sales, which further underscores the importance of P/S ratio.
Hence, P/S ratio can serve as a more reliable metric for stock valuation. Focusing solely on sales growth is, however, not enough. Considering a company’s cash position along with its sales number can prove to 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.
The Right Strategy
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 witnessed 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: Better-than-industry estimate revision has often been seen 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. A 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 12 stocks that made it through the screen:
Activision Blizzard, Inc. is a Santa Monica, CA-based developer and publisher of interactive entertainment, offering games for video game consoles, personal computers and handheld, mobile, and tablet devices in the U.S. and worldwide. The company, with a Zacks Rank #2, has a solid long-term expected EPS growth rate of 19.8%.
Nordstrom Inc. (JWN - Free Report) , based in Seattle, WA, is a leading fashion specialty retailer, offering high-quality apparel, shoes, cosmetics and accessories for men, women and kids. The company currently has a long-term expected EPS growth rate of 9.7% and carries a Zacks Rank #2.
Nu Skin Enterprises Inc. (NUS - Free Report) is engaged in the development and distribution of consumer products, offering beauty and wellness solutions under its Nu Skin personal care, Pharmanex nutrition brand and ageLOC anti-aging category brands in over 50 markets worldwide. The Provo, UT-based firm has a long-term expected EPS (earnings per share) growth rate of 6.2% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
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% and a Zacks Rank #2.
Foot Locker, Inc. (FL - Free Report) , one of the world’s leading providers of athletic footwear and apparel, operates around 3,400 stores in 23 countries across North America, Europe, Australia, and New Zealand. This New York, NY-based company has a long-term expected EPS growth rate of 9.8% and 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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Solid Sales Growth Makes These 5 Stocks Attractive Picks
When it comes to picking stocks, investors are often beguiled into undertaking complex investment strategies in a bid to book higher returns. However, with ever changing market dynamics, this may not yield the desired results every time. Hence, using conventional strategies, based on key fundamentals, to choose stocks is always a wise decision.
Conventional strategies are not only safe and sound, but are also worthwhile in bearish markets. We have picked one such strategy that is focused on sales growth.
Sales Growth – A Key Metric
Maintaining steady sales growth is the key to survival for any business, particularly amid the current market scenario, which is characterized by changing customer preferences, evolving needs, demographic changes and an extremely competitive environment. Sales growth as such remains an important measure for any corporate house, as it is vital to growth projections and strategic decision making.
It’s worth keeping in mind that when companies incur a loss for a temporary period, they are valued on their revenues, as sales growth (or decline) is usually an indicator of a company’s future earnings performance. Notably, in contrast with price to earnings and price to book value ratios, which can turn negative and cease to be relevant, the price-to-sales (P/S) ratio is available even for firms that have hit choppy waters.
Further, profits and book value are largely influenced by several factors including accounting decisions tied with depreciation, significant charges and inventory. However, management has limited opportunities to manipulate sales, which further underscores the importance of P/S ratio.
Hence, P/S ratio can serve as a more reliable metric for stock valuation. Focusing solely on sales growth is, however, not enough. Considering a company’s cash position along with its sales number can prove to 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.
The Right Strategy
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 witnessed 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: Better-than-industry estimate revision has often been seen 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. A 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 12 stocks that made it through the screen:
Activision Blizzard, Inc. is a Santa Monica, CA-based developer and publisher of interactive entertainment, offering games for video game consoles, personal computers and handheld, mobile, and tablet devices in the U.S. and worldwide. The company, with a Zacks Rank #2, has a solid long-term expected EPS growth rate of 19.8%.
Nordstrom Inc. (JWN - Free Report) , based in Seattle, WA, is a leading fashion specialty retailer, offering high-quality apparel, shoes, cosmetics and accessories for men, women and kids. The company currently has a long-term expected EPS growth rate of 9.7% and carries a Zacks Rank #2.
Nu Skin Enterprises Inc. (NUS - Free Report) is engaged in the development and distribution of consumer products, offering beauty and wellness solutions under its Nu Skin personal care, Pharmanex nutrition brand and ageLOC anti-aging category brands in over 50 markets worldwide. The Provo, UT-based firm has a long-term expected EPS (earnings per share) growth rate of 6.2% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
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% and a Zacks Rank #2.
Foot Locker, Inc. (FL - Free Report) , one of the world’s leading providers of athletic footwear and apparel, operates around 3,400 stores in 23 countries across North America, Europe, Australia, and New Zealand. This New York, NY-based company has a long-term expected EPS growth rate of 9.8% and 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 »