Steady sales growth is the key to survival for any business. Sales growth not only provides an insight into product demand and pricing power but also is vital for growth projections and strategic decision making.
Yet, often investors fail to consider sales growth as a dependable metric for picking profitable stocks. This might be because of investors’ preconceived notion that a company’s stock price is typically sensitive to its earnings momentum. Nevertheless, one must look for a strong relationship between sales growth levels and the value of an enterprise. This is because in cases where companies incur a loss, albeit briefly, they are valued on their revenues not earnings, as top-line growth (or decline) is usually an indicator of a company’s future performance. One must also ensure that sales numbers are not only increasing but recording year-over-year growth as well. So, the Price-to-Sales (P/S) ratio can turn out to be an appropriate metric for stock valuation. This metric’s importance lies in the fact that management has limited opportunities to manipulate revenues, unlike earnings. However, a huge sales number does not necessarily convert into profits. Hence, considering a company’s cash position along with its 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 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 22 stocks that qualified the screening: Based in Clayton, MO, Olin Corporation ( OLN Quick Quote OLN - Free Report) is a vertically-integrated global producer and distributor of chemical products and U.S. maker of ammunition. Its expected sales growth rate for 2021 is 46.2%. The stock currently carries a Zacks Rank #2. Headquartered in San Francisco, salesforce.com ( CRM Quick Quote CRM - Free Report) is the leading provider of on-demand Customer Relationship Management software. The company’s expected sales growth rate for fiscal 2022 is 23.7%. It currently carries a Zacks Rank #2. Comstock Resources, Inc. ( CRK Quick Quote CRK - Free Report) is engaged in the acquisition, exploration, development, and production of oil and natural gas. This Frisco, TX-based company’s sales are expected to increase at a rate of 61.8% for 2021. The stock carries a Zacks Rank #2 at present. Wyomissing, PA-headquartered, Gaming and Leisure Properties, Inc. ( GLPI Quick Quote GLPI - Free Report) is engaged in the business of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements. Its expected sales growth rate for 2021 is 3.2%. The stock carries a Zacks Rank #2 at present. Headquartered in New Britain, CT, Stanley Black & Decker, Inc. ( SWK Quick Quote SWK - Free Report) manufactures and provides tools (power and hand tools) and related accessories, healthcare solutions, electronic security solutions, engineered fastening systems, and many more items and services. Its expected sales growth rate for 2021 is 19.4%. 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