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Top 4 Sales Growth Stocks

Investors often overlook sales growth while picking stocks, as a company’s stock price is typically sensitive to its earnings momentum. However, earnings are quite vulnerable in the sense that books can be easily cooked and inflated. That’s why sales should always be considered.

Sales growth is actually an important indicator of a company's health and ability to sustain its business. It provides investors an insight into product demand and pricing power. The main advantage is that the sales figure is generally not manipulated and is less volatile than earnings.

Without some top-line growth, the bottom-line improvement may not be sustainable in the longer term. While a company can show earnings strength by reducing expenses, a sustainable bottom-line recovery usually requires sales growth.

Focusing solely on sales growth is not enough though. A healthy sales growth rate is certainly a positive indicator for picking good stocks, but it does not ensure profits. Therefore, 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. Cash also enables a company to endure market downturns. Most importantly, a sufficient cash position indicates that revenues are being channelized in the right direction.

The Winning Strategy

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 andCash Flow greater than $500 million as our primary screening parameters.

However, sales growth and cash strength are not absolute criteria for selecting stocks. So, we have 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. A lower ratio is considered a better investment since the investor is paying less for each unit of sales.

% Change F1 SalesEstimate Revisions (4 Weeks) greater than X-Industry: An upside estimate revision has often been observed to trigger an increase in the stock price.

Return on equity (ROE) greater than X-Industry:This metric will ensure that the sales growth is getting translated into profits and the company is not sitting idle on hoards of cash. A 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 four of the eight stocks that qualified the screening:

Gilead Sciences Inc.(GILD)

Five Prime Therapeutics, Inc.(FPRX)

T. Rowe Price Group, Inc.(TROW)

ResMed Inc.(RMD)

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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: http://www.zacks.com/performance

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T ROWE PRICE (TROW): Free Stock Analysis Report
 
RESMED INC (RMD): Free Stock Analysis Report
 
GILEAD SCIENCES (GILD): Free Stock Analysis Report
 
FIVEPRIME THERA (FPRX): Free Stock Analysis Report
 
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