Strong sales growth is one of the most important characteristics of potential winners in the stock market. The companies that put more emphasis on sales management have a competitive advantage, as solid sales generally get converted into growth.
Revenues are often more closely monitored than earnings when assessing the growth of a business. This is because investors want to make sure whether a business has the capability of generating more sales over time to cater to an expanding customer base. Flat or declining sales indicate obstacles for the company and offer limited scope for sustained growth. Stagnant companies may generate near-term profit, but do not ensure enough growth to attract new investors. Without impressive top-line growth, the bottom-line improvement may not be sustainable over time. While a company can gain earnings strength by lowering costs, a sustainable bottom-line recovery usually requires robust sales growth. Yet, sales growth in isolation doesn’t indicate much about a company’s future performance. Though it provides investors an insight into product demand and pricing power, a huge sales number is not necessarily translated into profits. So, taking into consideration a company’s cash position and 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 potential investments. Further, an adequate cash position suggests that revenues are being channelized in the right direction. Choosing 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: Denver, CO-based Molson Coors Beverage Company ( TAP Quick Quote TAP - Free Report) is the global manufacturer and seller of beer and other beverage products. Its expected sales growth rate for 2021 is 4.4%. The stock carries a Zacks Rank #2 at present. Headquartered in Denver, CO, DCP Midstream, LP ( DCP Quick Quote DCP - Free Report) owns, operates, acquires and develops a portfolio of midstream energy assets. Its expected sales growth rate for 2021 is 44.9%. The stock currently sports a Zacks Rank #1. Headquartered in Salt Lake City, UT, Extra Space Storage Inc. ( EXR Quick Quote EXR - Free Report) is a notable name in the self-storage industry. The company’s expected sales growth rate for 2021 is 2.3% and it currently carries a Zacks Rank #2. Portland General Electric Company ( POR Quick Quote POR - Free Report) — headquartered in Portland, OR — is an integrated electric utility company. Its expected sales growth rate for 2021 is 3%. The stock carries a Zacks Rank #2 at present. Headquartered in Cleveland, OH, Parker-Hannifin Corporation ( PH Quick Quote PH - Free Report) is a global diversified manufacturer of motion & control technologies, as well as systems. Its expected sales growth rate for fiscal 2022 is 8.2%. The stock currently carries a Zacks Rank #2. 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