Robust sales growth is one of the most important characteristics of potential winners in the market. The companies that emphasize sales management have a competitive edge, as strong sales usually translate to improved profitability.
With regard to this, stocks like Beacon Roofing Supply Inc. BECN, United Rentals Inc. URI, Valley National Bancorp VLY, Crown Castle International Corp. CCI and Berry Global Group, Inc. BERY are worth investing.
While assessing business growth, revenues are often more monitored than earnings. This is because investors want to make sure whether a business can generate more sales over time to cater to an expanding customer base.
Stable or declining sales growth indicates obstacles at the company. Stagnant companies may generate near-term profit but not enough growth to attract new investors. Without impressive revenue growth, bottom-line improvement may not be sustainable over a longer term.
Yet, sales growth alone doesn’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 and its sales number can prove to be a more dependable investment strategy. Substantial cash in hand and a steady cash flow give a company more flexibility with respect to business decisions and potential investments. Also, an adequate cash position suggests that revenues are channeled 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 24 stocks that qualified the screening:
Beacon Roofing is the largest distributor of residential and non-residential roofing materials in the United States and Canada. Herndon, VA-based BECN also distributes other complementary building products, including siding, windows, specialty exterior building products, insulation, and waterproofing systems for residential and non-residential building exteriors.
Beacon Roofing’s expected sales growth rate for fiscal 2022 is 7.1%. The stock currently carries a Zacks Rank #2.
Headquartered in Stamford, CT, United Rentals is the largest equipment rental company in the world, with an integrated network of 1,278 rental locations in the United States, Canada and Europe. URI’s principal products and services are equipment rental, sale of rental equipment, new equipment, contractor supplies, services and other.
United Rentals’ expected sales growth rate for 2022 is 10.3%. It currently carries a Zacks Rank #2.
Headquartered in Wayne, NJ, Valley National is the holding company for Valley National Bank, which offers various commercial, retail, insurance and wealth management financial services products. VLY conducts operations through 226 branch offices across the northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn, Queens, and Long Island, Florida and Alabama.
Valley National’s sales are expected to improve 12.9% for 2022. The stock carries a Zacks Rank #2 at present.
Houston-based Crown Castle is a leading independent operator of wireless communication towers in the United States. CCI is engaged in ownership, management and leasing of more than 40,000 cell towers and around 80,000 route miles of fiber supporting small cells and fiber solutions spread across key markets in the nation.
Crown Castle’s expected sales growth rate for 2022 is 6.1%. The stock carries a Zacks Rank #2 at present.
Berry Global manufactures and distributes nonwoven specialty materials, engineered materials and consumer packaging products in the market. BERY services personal care, healthcare as well as beverage and food markets.
Evansville, IN-based Berry Global’s expected sales growth rate for fiscal 2022 is 4.4%. 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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Crown Castle International Corporation (CCI) : Free Stock Analysis Report
Beacon Roofing Supply, Inc. (BECN) : Free Stock Analysis Report
United Rentals, Inc. (URI) : Free Stock Analysis Report
Berry Global Group, Inc. (BERY) : Free Stock Analysis Report
Valley National Bancorp (VLY) : Free Stock Analysis Report
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