One of the fundamental factors that help investors gauge a company’s future performance is sales growth.
Stable or decreasing sales growth reflects obstacles for the company and offers lesser scope for sustainable prospects. Stagnant companies may generate near-term profit, but that do not ensure enough growth to attract new investors.
Additionally, in absence of solid sales growth, bottom-line improvement may not be sustainable over the long term. While a company can strengthen earnings performance by lowering costs, a sustainable bottom-line improvement usually requires robust sales growth.
Nonetheless, sales growth alone can’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.
Hence, taking into consideration 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 potential investments. Most importantly, an adequate cash position suggests that revenues are being channelized in the right direction.
Selecting the Winning Stocks
In order to shortlist stocks that have witnessed impressive sales growth along with 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. So, we added certain other factors to arrive at a winning strategy.
Price-to-Sales (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 for it.
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 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 13 stocks that qualified the screening:
Starbucks Corporation SBUX operates as a roaster, marketer and retailer of specialty coffee. This Seattle, WA-based company’s expected sales growth rate for fiscal 2019 is 6.4% and it carries a Zacks Rank #2.
Based in New York, Bristol-Myers Squibb Company BMY discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products. Expected sales growth rate for 2019 is 5.9% and the stock carries a Zacks Rank #2.
Portland General Electric Company POR, headquartered in Portland, OR, is an integrated electric utility company, which is engaged in the generation, wholesale purchase, transmission, distribution and retail sale of electricity. Its expected sales growth rate for 2019 is 2.8%. The stock sports a Zacks Rank #1, at present.
Foot Locker, Inc. FL is an athletic shoes and apparel retailer. This New York-based company’s sales are expected to increase at the rate of 2.1% for fiscal 2020. The stock carries a Zacks Rank #2.
Headquartered in Lowell, AR, J.B. Hunt Transport Services, Inc. JBHT provides surface transportation and delivery services. This Zacks Rank #2 company’s expected sales growth rate for 2019 is 10.9%.
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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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J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
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