With Q3 earnings season in full swing, one must be looking to pick stocks based on their quarterly earnings as a company’s stock price is typically sensitive to its earnings momentum. But overlooking sales growth is not prudent. Earnings are quite vulnerable in the sense that books can be easily manipulated and the numbers inflated. That’s why sales should always be considered.

Accomplishing sales 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.

Also, 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, 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.

Choosing the Winning Stocks

In order to shortlist stocks that have witnessed impressive sales growth along with a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow greater than $500 million as our main screening parameters.

But sales growth and cash strength are not the absolute criteria for selecting stocks. So, we added certain other factors to arrive at a winning strategy.

Price-to-Sales (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 (4 Weeks) greater than X-Industry: Better-than-industry estimate revision has often been seen 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 translated into profits and the company is not hoarding 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are five of the 10 stocks that qualified the screening:

Based in Fremont, CA, Lam Research Corporation (LRCX Quick QuoteLRCX - Free Report) designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company has long-term expected earnings per share (EPS) growth rate of 14.9% and carries a Zacks Rank #1.

Xylem Inc. (XYL Quick QuoteXYL - Free Report) is engaged in the design, manufacture, and service of engineered solutions for the water and wastewater applications. This Rye Brook, NY-based stock currently has long-term expected EPS growth rate of 15% and carries a Zacks Rank #2.

Omega Healthcare Investors, Inc. (OHI Quick QuoteOHI - Free Report) , based in Hunt Valley, MD, is a real estate investment firm, which invests in healthcare facilities. It has long-term expected EPS growth rate of 3% and a Zacks Rank #2.

Celanese Corporation (CE Quick QuoteCE - Free Report) manufactures and sells value-added chemicals, thermoplastic polymers, and other chemical-based products. This Irving, TX-based company has a long-term expected EPS growth rate of 9% and a Zacks Rank #2.

Headquartered in Redwood City, CA, Electronic Arts Inc. (EA Quick QuoteEA - Free Report) develops, markets, publishes, and distributes games, content, and services. The company currently has a long-term expected EPS growth rate of 16.5% and a Zacks Rank #1.

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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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