In the current operating backdrop with ever shifting customer preferences and habits, demographic changes and an extremely competitive environment, maintaining a steady sales growth is the key to survival for any business. Companies are always looking out for ways to boost their marketing initiatives to drive sales.
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, although transitorily, they are valued on their revenues, as top-line growth (or decline) is usually an indicator of a company’s future earnings performance. Hence, the Price-to-Sales (P/S) ratio can turn out to be an appropriate metric for stock valuation. It remains a key stock selection criterion keeping in mind that management usually has limited opportunities to tamper with revenues as they can with earnings. Thus, the P/S ratio is subject to lesser manipulation than the Price-to-Earnings ratio. Sales growth in isolation is, however, not a sufficient criterion for 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 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 20 stocks that qualified the screening: Headquartered in New York City, Take Two Interactive Software ( TTWO Quick Quote TTWO - Free Report) is a leading developer and publisher of video games. Its expected sales growth rate for fiscal 2021 is 14.5%. The stock currently carries a Zacks Rank #2. Parker-Hannifin Corporation ( PH Quick Quote PH - Free Report) , based in Cleveland, OH, is a global diversified manufacturer of motion & control technologies and systems. The company’s expected sales growth rate for fiscal 2021 is 2%. It currently carries a Zacks Rank #2. Headquartered in New York, Tapestry, Inc. ( TPR Quick Quote TPR - Free Report) is the designer and marketer of fine accessories and gifts for women and men. Its expected sales growth rate for fiscal 2021 is 9.6%. The stock carries a Zacks Rank #2 at present. Cleveland, OH-based KeyCorp ( KEY Quick Quote KEY - Free Report) provides a wide range of products and services, such as commercial and retail banking, commercial leasing, investment management, consumer finance as well as investment banking products. Its expected sales growth rate for 2021 is 1%. The stock sports a Zacks Rank #1 at present. New York-based Interpublic Group of Companies Inc. ( IPG Quick Quote IPG - Free Report) provides advertising and marketing services worldwide. Its expected sales growth rate for 2021 is 5.5%. 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