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5 Stocks With Robust Sales Growth Worth Adding to Portfolio

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When it comes to choosing stocks, investors often pick complex investment strategies in a bid to book higher returns. But with ever changing market dynamics, this may not yield the desired results always. Therefore, using conventional strategies, based on key fundamentals, to choose stocks is a wise decision.

One such strategy is sales growth. Maintaining steady sales growth is the key to survival for any business. Sales growth as such remains a vital measure for any corporate house, as it is important to growth projections and strategic decision-making.

So, when companies incur losses for a temporary period, they are valued on the basis of revenues, as top-line growth (or decline) is usually an indicator of a company's future earnings performance. Also, in contrast to price to earnings and price to book value ratios, which can turn negative and cease to be relevant, price-to-sales (P/S) ratio is available even for companies that have hit choppy waters.

Additionally, 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. 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 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 more 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 (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 for it.

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 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 12 stocks that qualified the screening:    

Regeneron Pharmaceuticals, Inc. (REGN - Free Report) is a biopharmaceutical company, which discovers, invents, develops, manufactures and commercializes medicines for treating serious medical conditions. This Tarrytown, NY-based company’s expected sales growth rate for 2018 is 10.2% and it carries a Zacks Rank #2.

Based in Dallas, TX, AT&T Inc. (T - Free Report) provides communications and digital entertainment services. Expected sales growth rate for the current year is 8.8% and the stock sports a Zacks Rank #1.

AMETEK, Inc. (AME - Free Report) , headquartered in Berwyn, PA, manufactures and sells electronic instruments and electromechanical devices. Its current-year expected sales growth rate is 11% and the stock carries a Zacks Rank #2.

Headquartered in Hershey, PA, The Hershey Company (HSY - Free Report) manufactures and sells confectionery products. The company’s expected sales growth rate for 2018 is 4% and it carries a Zacks Rank #2.

BGC Partners, Inc. operates as a brokerage company servicing the financial and real estate markets. This New York-based company’s sales are expected to increase at the rate of 22.4% for 2018.The stock 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