Sales growth is an important metric for any company, as it is a vital part of growth projections and instrumental in strategic decision making. By monitoring this key metric over multiple time periods, one can 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 dismal financial performance. Stagnant companies may generate near-term profit, but can’t register enough growth to attract new investors.

Also, in a growing economy, lack of sales growth shows that the company is not gaining market share over its competitors. In simple terms, some sustained sales growth is necessary to support the bottom line.

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. So, taking into consideration a company’s cash position along with its sales number can prove to be a more dependable investment strategy.

Substantial cash on hand and a steady cash flow provide the company with more flexibility in relation 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.

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 nine stocks that qualified the screening:

Based in Bethesda, MD, CBRE Group, Inc. operates as a commercial real estate services and investment company. The company has expected sales growth rate of 6.9% for the current year and carries a Zacks Rank #2.

Raymond James Financial, Inc. (RJF Quick QuoteRJF - Free Report) engages in the underwriting, distribution, trading, and brokerage of equity and debt securities, and the sale of mutual funds and other investment products. This St. Petersburg, FL-based stock has expected sales growth rate of 11.2% for fiscal 2018 and carries a Zacks Rank #2.

Huntington Ingalls Industries, Inc. (HII Quick QuoteHII - Free Report) , based in Newport News, VA, is engaged in designing, building, overhauling, and repairing ships. Its current year expected sales growth rate is 4.5% and the stock carries a Zacks Rank #2.

Headquartered in Detroit, MI, DTE Energy Company (DTE Quick QuoteDTE - Free Report) is engaged in utility operations. The company has expected sales growth rate of 5.4% for this year and carries a Zacks Rank #2.

AMETEK, Inc. (AME Quick QuoteAME - Free Report) manufactures electronic instruments and electromechanical devices. This Berwyn, PA-based company’s current year sales are expected to grow at the rate of 10.6% and the stock has a Zacks Rank #2.

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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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