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5 Top-Ranked Stocks with Strong Sales Growth to Buy Now

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Sales growth is a major financial indicator, which is often neglected while searching for a profitable investment strategy. In the current market scenario, marked by changing customer preferences and habits, evolving needs, demographic changes and an extremely competitive environment, maintaining stable sales growth is vital for any business.

Companies are always looking out for ways to boost their marketing initiatives to drive revenues. 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 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 apt metric for stock valuation. It remains a major stock selection criterion as management usually has limited opportunities to manipulate revenues unlike earnings. Thus, the P/S ratio is subject to lesser influence than the Price-to-Earnings ratio.

Sales growth in isolation, however, does not assure 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 steady cash flow give a company more flexibility with respect to business decisions and investments.

Selecting the Winning Stocks

In order to shortlist stocks that have witnessed impressive sales growth along with a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow greater than $500 million as our main screening parameters.

But sales growth and cash strength are not the absolute criteria for selecting stocks. So, we added certain other factors to arrive at a winning strategy.

Price-to-Sales (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 (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 20 stocks that qualified the screening:

Marriott International, Inc. (MAR - Free Report) , based in Bethesda, MD, operates, franchises, and licenses hotels and timeshare properties. It has a long-term expected earnings per share (EPS) growth rate of 8.9%. The company carries a Zacks Rank #2.

Applied Materials, Inc. (AMAT - Free Report) provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. This Santa Clara, CA-based company currently has long-term expected EPS growth rate of 16.6% and holds a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Farmington, CT, United Technologies Corporation offers technology products and services to building systems and aerospace industries. The company currently has a long-term expected EPS growth rate of 8.5% and a Zacks Rank #2.

Western Digital Corporation (WDC - Free Report) , based in Irvine, CA, develops, manufactures, and sells data storage devices and solutions. The company has a long-term expected EPS growth rate of 4.8% and sports a Zacks Rank #1.

Microchip Technology Incorporated (MCHP - Free Report) develops, manufactures, and sells semiconductor products for various embedded control applications. This Chandler, AZ-based company has a long-term expected EPS growth rate of 14.4% and carries a Zacks Rank #2.

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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


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