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Top 5 Stocks with Powerful Sales Growth to Buy Now

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An age-old Wall Street saying has it that “uncertainty is the enemy of investors.” If this be so, picking stocks rationally based on fundamentals is the key to navigating any market downturn. In this article, among several rational and down-to-earth investment strategies, we picked one that is focused on the sales growth of a company.

Why Sales Growth?

A healthy business with steady sales growth is the key to survival in today’s fast changing and highly competitive business environment. As such, superior revenues are necessary to drive growth, and most companies look for a strong relationship between sales growth levels and the value of an enterprise.

Revenues are income generated by a company through business activities. Though a company might not be profitable over a particular time period, it usually generates revenues unless there are unforeseen situations like a factory shut down, a strike and lack of human capital or any other resources required for products and services.

Notably, in cases when companies tend to incur a loss on a temporary basis due to short-term situations like product development stage, new entrant in a high-growth industry or paying higher taxes, companies are valued based on revenues and not on earnings. This is because sales growth (or decline) is usually an early indicator of the company’s future earnings performance.

The Price-to-Sales (P/S) ratio takes into account a company’s revenue when valuing it. Notably, it remains a key stock selection criteria keeping in mind that management usually has limited opportunities to fiddle with revenues as they can with earnings. Thus, the P/S ratio is subject to lower manipulation than the Price-to-Earnings ratio.  

Ensure Right Picks

While sales growth is an important metric for any corporate for the purpose of growth projections and strategic decision-making, this in isolation doesn’t indicate too much about a company’s future performance. Though it provides investors an insight into product demand and pricing power, a huge sales number does not necessarily convert into profits.

Therefore, 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 further potential investments. Most importantly, an adequate cash position suggests that revenues are being channelized in the right direction.

Right Strategy

A careful selection of stocks considering certain factors should help investors not only to build wealth but beat the market as well.

In order to shortlist stocks that have impressive sales growth along with a high cash balance, we added 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow greater than $500 million as our primary screening parameters.

However, sales growth and cash strength are not the absolute criteria for selecting stocks. So, we added a few other factors to arrive at a winning strategy.

Price-to-Sales (P/S) Ratio less than X-Industry: This metric measures 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 (4 Weeks) greater than X-Industry: Northward estimate revision has often been observed to trigger an increase in the stock price.

Operating Margin (Average Last 5 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 for the company.

Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is being translated into profits and the company is not hoarding cash. High ROE means 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.

Here are 5 of the 13 stocks that made it through the screen:

Raymond James Financial, Inc. (RJF - Free Report) , a Florida-based company in the investment brokerage space, has a long-term expected EPS (earnings per share) growth rate of 17.0%. The company sports a Zacks Rank #1.

LPL Financial Holdings Inc. (LPLA - Free Report) , also operating in the investment brokerage space, currently has a long-term expected EPS growth rate of 15%. This Massachusetts-based company sports a Zacks Rank #1.

Total System Services, Inc. is engaged in offering payment processing, merchant, and related payment services to financial and nonfinancial institutions globally. This Georgia-based company currently has a long-term expected EPS growth rate of 13.7% and sports a Zacks Rank #1.

Two Harbors Investment Corp. (TWO - Free Report) is a Florida-based real estate investment trust (REIT) that is engaged in investing in, financing, and managing residential mortgage-backed securities. The company has a long-term expected EPS growth rate of 4.8% with a Zacks Rank #2.

ConAgra Foods, Inc. (CAG - Free Report) , a Nebraska-based packaged food company, has a long-term expected EPS growth rate of 8.1%.The company carries a Zacks Rank #2.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

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


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