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Steady growth in sales is the key to surviving in a competitive operating environment. However, sales growth is often overlooked by investors as a reliable metric when it comes to stock selection. This may be due to their preconceived notion that a company’s stock price is usually sensitive to its earnings momentum.
However, it should be noted that when companies incur losses, albeit temporary, they are evaluated based on their revenue, as top-line growth (or decline) is usually indicative of the company’s expectations.
As for these stocks like Nextstar Media Group Inc. NXST, Universal Health Services Inc. UHS, salesforce.com CRM, WW Grainger Inc. GWW and MARVEL Technology MRVL is well worth betting on.
A company can improve profits by resorting to expense control measures while maintaining steady revenue. However, in the bottom line, sustainable growth always requires higher returns.
Therefore, the price-to-sales (P/S) ratio can be a suitable measure of inventory valuation. The significance of this metric lies in the fact that management has limited scope to deal with revenue as opposed to profit.
While sales growth provides investors with an understanding of product demand and pricing power, it does not reflect whether the company is operating efficiently. A huge sales figure does not necessarily turn into profits.
Hence, considering the cash position of the company along with its sales can be a more reliable strategy. Large cash on hand and a steady cash flow provide the company with more flexibility regarding business and investment decisions.
Picking winning stocks
In order to shortlist the stocks with amazing growth in sales and high cash balance, we chose 5-year historical sales growth (%) greater than the X-ray industry And Cash flow over $500 million As our main screening parameters.
But sales growth and cash strength are not the absolute criterion for stock selection. Hence, we added some 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 revenue. The lower the ratio, the better the stock pick because the investor pays less per unit sales.
Percentage changes of F1 sales estimate (four weeks) greater than X-Industry: Discretionary reviews, better than the industry, are often seen as leading to an increase in the stock price.
Operating margin (average of the last five years) is greater than 5%: Operating margin measures how much each dollar of a company’s sales translates into profits. A high ratio indicates that the company has good cost control and that sales are increasing faster than costs – which is the optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and that the company is not hoarding cash. A high return on equity means that the company is spending wisely and is likely to be profitable.
Zacks rank less than or equal to 2: Zacks stocks ranked #1 (strong buy) or 2 (buy) are known to outperform, regardless of the market environment. you can see The full list of Zacks #1 stocks today is here.
Here are five of the 17 stocks eligible for screening:
Headquartered in Irving, Texas, Nextar Media is a television broadcasting and digital media company. NXST is focused on acquiring, developing and operating television stations, interactive online community sites, and digital media services in the United States.
The projected Nexstar Media sales growth rate for 2022 is 13.2%. The stock currently has a Zacks #2 rating.
King of Prussia, based in the Palestinian Authority global health It owns and operates (through its subsidiaries) acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. Through its subsidiaries, UHS operates 350 inpatient intensive care hospitals and behavioral health facilities, and 37 outpatient clinics and other facilities located in 37 states.
The projected growth rate for Universal Health for 2022 is 4.2%. It currently holds a Zacks rating of #2.
Based in San Francisco, California, salesforce.com It is the leading provider of on-demand CRM software. CRM has leveraged its on-demand software expertise to scale operations.
Salesforce.com is expected to improve 20.3% for fiscal year 2023. The stock is currently ranked #1 on Zacks.
Grainger It is an extensive, company-to-company line of maintenance, repair and operation products and services. Headquartered in IL, Lake Forest, GWW operates primarily in North America, Japan, and the United Kingdom
Grainger’s projected sales growth rate for 2022 is 7.5%. The stock has a Zacks rating of #2 at present.
Marvel He is a designer, developer and marketer of analog and hybrid integrated circuits and digital signal processing. MRVL operates in Bermuda, China, Germany, Japan, Korea, Taiwan, the United Kingdom and the United States.
Marvel’s projected sales growth rate for fiscal year 2023 is 33%. Sports stocks Zacks is currently ranked #1.
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Disclosure: The officers, directors and/or employees of Zacks Investment Research may own or sell short-term securities and/or hold long and/or short positions in the options mentioned in this material. An affiliate investment advisory firm may own or have sold short securities and/or hold long and/or short positions in the options mentioned in this article.
Disclosure: Performance information for Zacks portfolios and strategies is available at: https://www.zacks.com/performance
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