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Bet on These 5 Top-Ranked Stocks With Solid Sales Growth
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A healthy business with steady sales growth is the key to survival amid fast changing and highly competitive business environment. Yet, when it comes to choosing stocks, investors often fail to recognize sales growth as a dependable metric. This could be because of investors’ preconceived notion that a company’s stock price is typically sensitive to its earnings growth.
Nevertheless, it’s worth keeping in mind that 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.
Further, a company can improve earnings by resorting to cost control measures while maintaining stable revenues. However, a sustainable bottom-line growth invariably requires superior revenues.
Hence, the Price-to-Sales ratio can turn out to be an appropriate metric for stock valuation. Also, this metric’s importance further lies in the fact that management has limited opportunities to manipulate revenues unlike earnings.
While sales growth provides investors an insight into product demand and pricing power, it doesn’t indicate whether the company is operating efficiently. A huge sales number does not necessarily convert into profits.
So, 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.
Picking 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.
Here are five of the 15 stocks that qualified the screening:
San Francisco, CA-based Williams-Sonoma (WSM - Free Report) is a multi-channel specialty retailer of premium quality home products. Its expected sales growth rate for fiscal 2021 is 10.6%. The stock sports a Zacks Rank #1 at present.
Headquartered in Milwaukee, WI, Rockwell Automation (ROK - Free Report) provides industrial automation and information solutions worldwide. Its expected sales growth rate for fiscal 2021 is 6.5%. The stock currently carries a Zacks Rank #2.
Headquartered in Miami, FL, Lennar (LEN - Free Report) is engaged in homebuilding and financial services in the United States. The company’s expected sales growth rate for fiscal 2021 is 7.2% and it currently sports a Zacks Rank #1.
People's United , headquartered in Bridgeport, CT, is a diversified financial services company. Its expected sales growth rate for 2020 is 9%. The stock carries a Zacks Rank #2 at present.
Based in St. Paul, MN, 3M Company (MMM - Free Report) is a conglomerate and operates as a diversified technology firm. Its expected sales growth rate for fiscal 2021 is 5.7%. 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.
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.
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Bet on These 5 Top-Ranked Stocks With Solid Sales Growth
A healthy business with steady sales growth is the key to survival amid fast changing and highly competitive business environment. Yet, when it comes to choosing stocks, investors often fail to recognize sales growth as a dependable metric. This could be because of investors’ preconceived notion that a company’s stock price is typically sensitive to its earnings growth.
Nevertheless, it’s worth keeping in mind that 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.
Further, a company can improve earnings by resorting to cost control measures while maintaining stable revenues. However, a sustainable bottom-line growth invariably requires superior revenues.
Hence, the Price-to-Sales ratio can turn out to be an appropriate metric for stock valuation. Also, this metric’s importance further lies in the fact that management has limited opportunities to manipulate revenues unlike earnings.
While sales growth provides investors an insight into product demand and pricing power, it doesn’t indicate whether the company is operating efficiently. A huge sales number does not necessarily convert into profits.
So, 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.
Picking 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 15 stocks that qualified the screening:
San Francisco, CA-based Williams-Sonoma (WSM - Free Report) is a multi-channel specialty retailer of premium quality home products. Its expected sales growth rate for fiscal 2021 is 10.6%. The stock sports a Zacks Rank #1 at present.
Headquartered in Milwaukee, WI, Rockwell Automation (ROK - Free Report) provides industrial automation and information solutions worldwide. Its expected sales growth rate for fiscal 2021 is 6.5%. The stock currently carries a Zacks Rank #2.
Headquartered in Miami, FL, Lennar (LEN - Free Report) is engaged in homebuilding and financial services in the United States. The company’s expected sales growth rate for fiscal 2021 is 7.2% and it currently sports a Zacks Rank #1.
People's United , headquartered in Bridgeport, CT, is a diversified financial services company. Its expected sales growth rate for 2020 is 9%. The stock carries a Zacks Rank #2 at present.
Based in St. Paul, MN, 3M Company (MMM - Free Report) is a conglomerate and operates as a diversified technology firm. Its expected sales growth rate for fiscal 2021 is 5.7%. 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