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Solid Sales Growth Makes These 5 Stocks Worth Betting on
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Investors often fail to consider sales growth as a dependable metric when it comes to selecting stocks. This might be because of their preconceived notion that a company’s stock price is typically sensitive to its earnings momentum. However, betting on stocks completely depending on such a perception may not prove worthwhile.
It’s worth keeping in mind that in cases when companies incur any loss, albeit transitorily, they are valued on their revenues, not earnings, as top-line growth (or decline) is usually an indicator of a company’s future earnings performance. In this regard, stocks like News Corporation (NWSA - Free Report) , Commercial Metals Company (CMC - Free Report) , Lennar Corporation (LEN - Free Report) , Lithia Motors, Inc. (LAD - Free Report) and Comstock Resources, Inc. (CRK - Free Report) are worth considering.
In contrast with price to earnings and price to book value ratios, which can turn negative and cease to be relevant, the price-to-sales (P/S) ratio is available even for firms that have hit choppy waters. A company can improve earnings by resorting to cost control measures while maintaining stable revenues. However, superior profits could only be achieved through sustained revenue growth.
Yet, a huge sales number does not necessarily convert into profits. So, considering a company’s cash position along with its sales number can prove to be more prudent. Substantial cash in hand and a steady cash flow lend a company more flexibility with respect to business decisions and investments.
Selecting the 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 20 stocks that qualified the screening:
New York-based News Corporation is a global, diversified media and information services company. NWSA comprises businesses across a range of media – Digital Real Estate Services, Subscription Video Services, Book Publishing, Dow Jones and News Media,
News Corporation’s expected sales growth rate for fiscal 2022 is 7.9%. The stock currently sports a Zacks Rank #1.
Irving, TX-based Commercial Metals manufactures, recycles and markets steel and metal products, related materials and services. CMC provides these through a network of facilities that includes eight electric arc furnace (EAF) mini mills, two EAF micro mills, a rerolling mill, steel fabrication and processing plants, construction-related product warehouses and metal recycling facilities in the United States and Poland.
Commercial Metals’ sales are expected to increase 24.5% for fiscal 2022. The stock sports a Zacks Rank #1 at present.
Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.
Lennar’s expected sales growth for fiscal 2022 is 25.7%. The company, at present, carries a Zacks Rank #2.
Lithia Motors, based in Medford, OR, is one of the leading automotive retailers of new and used vehicles and related services in the United States. LAD offers 40 vehicle brands across 278 stores in 22 states within the United States and three Canadian provinces.
Lithia Motors’ expected sales growth rate for 2022 is 15.6%. The stock carries a Zacks Rank #2 at present.
Frisco, TX-based Comstock Resources is an independent energy company. CRK is engaged in the acquisition, exploration, development and production of oil and natural gas, primarily in North Louisiana and East Texas.
Comstock Resources’ expected sales growth rate for 2022 is 3.1%. The stock carries a Zacks Rank #2 currently.
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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Solid Sales Growth Makes These 5 Stocks Worth Betting on
Investors often fail to consider sales growth as a dependable metric when it comes to selecting stocks. This might be because of their preconceived notion that a company’s stock price is typically sensitive to its earnings momentum. However, betting on stocks completely depending on such a perception may not prove worthwhile.
It’s worth keeping in mind that in cases when companies incur any loss, albeit transitorily, they are valued on their revenues, not earnings, as top-line growth (or decline) is usually an indicator of a company’s future earnings performance. In this regard, stocks like News Corporation (NWSA - Free Report) , Commercial Metals Company (CMC - Free Report) , Lennar Corporation (LEN - Free Report) , Lithia Motors, Inc. (LAD - Free Report) and Comstock Resources, Inc. (CRK - Free Report) are worth considering.
In contrast with price to earnings and price to book value ratios, which can turn negative and cease to be relevant, the price-to-sales (P/S) ratio is available even for firms that have hit choppy waters. A company can improve earnings by resorting to cost control measures while maintaining stable revenues. However, superior profits could only be achieved through sustained revenue growth.
Yet, a huge sales number does not necessarily convert into profits. So, considering a company’s cash position along with its sales number can prove to be more prudent. Substantial cash in hand and a steady cash flow lend a company more flexibility with respect to business decisions and investments.
Selecting the 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:
New York-based News Corporation is a global, diversified media and information services company. NWSA comprises businesses across a range of media – Digital Real Estate Services, Subscription Video Services, Book Publishing, Dow Jones and News Media,
News Corporation’s expected sales growth rate for fiscal 2022 is 7.9%. The stock currently sports a Zacks Rank #1.
Irving, TX-based Commercial Metals manufactures, recycles and markets steel and metal products, related materials and services. CMC provides these through a network of facilities that includes eight electric arc furnace (EAF) mini mills, two EAF micro mills, a rerolling mill, steel fabrication and processing plants, construction-related product warehouses and metal recycling facilities in the United States and Poland.
Commercial Metals’ sales are expected to increase 24.5% for fiscal 2022. The stock sports a Zacks Rank #1 at present.
Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily.
Lennar’s expected sales growth for fiscal 2022 is 25.7%. The company, at present, carries a Zacks Rank #2.
Lithia Motors, based in Medford, OR, is one of the leading automotive retailers of new and used vehicles and related services in the United States. LAD offers 40 vehicle brands across 278 stores in 22 states within the United States and three Canadian provinces.
Lithia Motors’ expected sales growth rate for 2022 is 15.6%. The stock carries a Zacks Rank #2 at present.
Frisco, TX-based Comstock Resources is an independent energy company. CRK is engaged in the acquisition, exploration, development and production of oil and natural gas, primarily in North Louisiana and East Texas.
Comstock Resources’ expected sales growth rate for 2022 is 3.1%. The stock carries a Zacks Rank #2 currently.
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