Sales growth is an important metric for any company, as it is a vital part of growth projections and contributes to strategic decision-making. By monitoring this key metric over multiple periods, one can clearly understand a company’s growth trend.
Sales growth is essential to justify the fixed and variable expenses incurred to operate a business. Low revenues lead to an unprofitable business and negative financial results. Stagnant companies may generate near-term profit, but can’t accelerate enough growth to attract new investors.
Also, in a growing economy, lack of sales growth most likely indicates that the company is not gaining market share over its competitors. In simple terms, some sustained sales growth is required to support the bottom line. In this regard, stocks like
Williams-Sonoma, Inc.
WSM
,
LyondellBasell Industries N.V.
LYB
,
Southern Copper Corporation
SCCO
,
W. P. Carey Inc.
WPC
and
Exxon Mobil Corporation
XOM
are worth considering.
But focusing solely on sales growth is not enough. A healthy sales growth rate is certainly a positive indicator for picking good stocks, but it does not ensure profits. Hence, taking into consideration a company’s cash position, along with its sales number, can prove to be a more dependable strategy.
Substantial cash on hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments. Sufficient cash also enables a firm to endure market downturns. Most importantly, a sufficient cash position indicates that revenues are being channelized in the right direction.
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 22 stocks that qualified the screening:
San Francisco, CA-based
Williams-Sonoma
is a multi-channel specialty retailer of premium quality home products. Incorporated in 1973, WSM has five brands, and each of the brands is an operating segment — Pottery Barn, West Elm, Williams-Sonoma, Pottery Barn Kids and Teen, and Other.
Williams-Sonoma’s expected sales growth rate for fiscal 2023 is 5.1%. The stock currently sports a Zacks Rank #1.
Houston, TX-based
LyondellBasell
is among the leading plastics, chemical and refining companies globally, with operations across 18 countries. LYB’s products are used across various industries, including electronics, automotive parts, packaging, construction materials and biofuels.
LyondellBasell’s sales are expected to increase 7.1% for 2022. The stock carries a Zacks Rank #2 at present.
Based in Phoenix, AZ,
Southern Copper
is engaged in mining, exploring, smelting and refining copper and other minerals. SCCO conducts exploration activities in Argentina, Chile, Ecuador, Mexico and Peru.
Southern Copper’s expected sales growth for 2022 is 1.5%. The company, at present, carries a Zacks Rank #2.
W. P. Carey
, based in New York, is among the largest net lease REITs and has a diversified portfolio of operationally-critical commercial real estate. WPC has invested in high-quality single-tenant industrial, warehouse, office, retail and self-storage properties subject to long-term net leases with built-in rent escalators.
W. P. Carey’s expected sales growth rate for 2022 is 5.3%. The stock carries a Zacks Rank #2 at present.
Irving, TX-based
Exxon
explores for and produces crude oil and natural gas. XOM operates through Upstream, Downstream and Chemical segments.
Exxon’s expected sales growth rate for 2022 is 23.1%. The stock sports a Zacks Rank #1 currently.
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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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