There's an old saying in baseball: You can't steal first base. No matter how fast you are, at some point you have to hit the ball.
Companies, too, have to hit the ball. What do companies do? They sell things. Be it a product or a service, companies have to hit the ball every day.
When looking for a great company, you're always looking at profit growth, which certainly is crucial. But profit is only sales minus costs. Companies can boost profits simply by cutting costs. And well they should; there's nothing wrong with efficiency.
Here's the problem: Cost-cutting is a short-term approach. You can only go so far with it.
Starbucks (SBUX) didn't become a screaming winner by cutting costs. Instead, it changed the way we think of coffee shops. Costco Wholesale (COST), Amazon.com (AMZN) and eBay (EBAY) changed the way we shop. Dell (DELL), Microsoft (MSFT) and Intel (INTC) changed the way we do practically everything.
What do the game-changing stocks have in common? Red-hot . As if everyone in America needed that $3 coffee.
Outstanding sales growth ties into the N in . It stands for New. Throngs don't flock to the same old, same old.
Realize, too, that sales and profits aren't two independent stars in the sky.
Huge sales growth shows the public is clamoring for a company's product or service. It's new and has little or no competition. Margins are fat and juicy. Doesn't that sound like the recipe for big profit growth
So, how much sales growth must a company achieve to achieve standout status
First, you want to see at least 25% growth in the most recent quarter, just as demanded by the C in CAN SLIM. The three-year sales growth rate needn't be that large — but it certainly shouldn't be negative.
Even if a company's sales growth lacks the 25% pace, it can impress by posting accelerating growth, meaning a higher rate of growth on a year-over-year basis in at least several recent quarters. The table shows top-rated stocks from the IBD 50 soon after the Nasdaq's March 5 follow-through, their sales growth and .
So, let a company cut costs. It's a healthy exercise and keeps one honest.
But that's not a plan for huge sustainable profits. And without that, where can a stock go? You can't steal first base.