Accomplishing growth is extremely challenging in today’s multifaceted and fast-changing business environment. So, the companies have stepped up marketing initiatives over digital platforms and have become more professional about sales management to drive their top line.
Technological evolvement, which is bringing the world closer, further emphasizes the importance of sales and the need for companies to apply the right strategies and provide the right services to improve their selling.
Further, sales growth is an important metric for any company as it is a vital part of growth projections and instrumental in strategic decision-making. Unsurprisingly, sales growth gets more attention from investors in the investment process, as a healthy sales growth rate is usually a positive investment indicator.
However, sales growth in isolation doesn’t reveal 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 translate 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 potential investments. Most importantly, an adequate cash position suggests that revenues are being channelized in the right direction.
Play Like a Champion
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 getting 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 five of the eight stocks that qualified the screening:
ARRIS International plc (ARRS)
WSFS Financial Corp. (WSFS)
Euronet Worldwide, Inc. (EEFT)
Raymond James Financial, Inc. (RJF)
Two Harbors Investment Corp. (TWO)
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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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