Sales growth is a vital financial indicator that is often ignored while searching for a profitable investment strategy. In the current market scenario, which is marked by changing customer preferences and habits, evolving needs and an extremely competitive environment, maintaining stable sales growth is necessary for any business.
Companies are always looking out for ways to boost their marketing initiatives to drive revenues. Notably, revenues are often more closely monitored than earnings when assessing the growth of a business. It must be kept in mind that in cases 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. Hence, the Price-to-Sales (P/S) ratio can turn out to be an appropriate metric for stock valuation. It remains a major stock selection criterion as management usually has limited opportunities to manipulate revenues unlike earnings. Thus, the P/S ratio is subject to lesser influence than the Price-to-Earnings ratio. Sales growth in isolation, however, does not assure 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 steady cash flow give a company more flexibility with respect to business decisions and investments. Selecting 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 24 stocks that qualified the screening: Headquartered in Richmond, VA, CarMax Inc. ( KMX Quick Quote KMX - Free Report) operates as a specialty retailer of used and new vehicles. Its expected sales growth rate for fiscal 2022 is 40.8%. The stock currently sports a Zacks Rank #1. Based in Scottsdale, AZ, Carlisle Companies Incorporated ( CSL Quick Quote CSL - Free Report) is engaged in the design, manufacture and sale of a wide range of roofing and waterproofing products, engineered products, finishing equipment and brake as well as friction system solutions. The company’s expected sales growth rate for 2021 is 9.1%. It currently carries a Zacks Rank #2. Qorvo, Inc. ( QRVO Quick Quote QRVO - Free Report) is a leading provider of core technologies and radio frequency solutions for mobile, infrastructure and aerospace/defense applications. This Greensboro, NC-based company’s sales are expected to grow at a rate of 18.3% for fiscal 2022. The stock carries a Zacks Rank #2 at present. Santa Ana, CA-based First American Financial ( FAF Quick Quote FAF - Free Report) serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs. Its expected sales growth rate for 2021 is 12%. The stock carries a Zacks Rank #2 at present. Headquartered in Houston, TX, Cheniere Energy Inc. ( LNG Quick Quote LNG - Free Report) is primarily engaged in businesses related to liquefied natural gas. Its expected sales growth rate for 2021 is 43.2%. 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