Robust sales growth is one of the vital characteristics of potential winners in the stock market. The companies that put more emphasis on sales management have a competitive edge, as strong sales usually translate to improved profitability.
While assessing business growth, revenues are often monitored more than earnings. 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. Stable or declining sales growth indicates obstacles at the company. Though stagnant companies may generate near-term profit, they do not record enough growth to attract new investors. Without robust revenue growth, bottom-line improvement may not be sustainable over a long term. While a company can show earnings strength by lowering costs, continuous bottom-line improvement usually requires robust sales growth. Yet, sales growth alone 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, along with its sales number, can prove to be a more dependable investment strategy. Substantial cash in hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments. An adequate cash position suggests that revenues are being channelized in the right direction. 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 18 stocks that qualified the screening: Headquartered in Birmingham, AL, Encompass Health Corporation ( EHC Quick Quote EHC - Free Report) is a provider of integrated healthcare services. Its expected sales growth rate for 2021 is 10.6%. The stock currently carries a Zacks Rank #2. Celanese Corporation ( CE Quick Quote CE - Free Report) is a global hybrid chemical company, which produces chemical substances and materials. This Irving, TX-based company’s expected sales growth rate for 2021 is 25.9%. It currently sports a Zacks Rank #1. Headquartered in San Francisco, CA, salesforce.com, inc. ( CRM Quick Quote CRM - Free Report) is the leading provider of on-demand customer relationship management software. Its expected sales growth rate for fiscal 2022 is 22%. The stock sports a Zacks Rank #1 at present. Denver, CO-based Ovintiv Inc. ( OVV Quick Quote OVV - Free Report) is an independent energy producer, which explores and churns out oil and natural gas from diverse assets located in the United States and Canada. Its expected sales growth rate for 2021 is 19.7%. The stock sports a Zacks Rank #1 at present. Seattle, WA-headquartered Expeditors International of Washington, Inc. ( EXPD Quick Quote EXPD - Free Report) is engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight. Its expected sales growth rate for 2021 is 9.8%. The stock carries a Zacks Rank #2 at present. 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