A stock's price follows its earnings, which in turn follow its sales. A company needs only to take care of its business for investors to profit in the long run.
With that in mind, examining companies whose revenues and profits are rising -- and which inspire analysts' confidence in continued future growth -- should give us a fertile field in which to discover solid candidates for long-term outperformance.
The roaring 20s
Below are a handful of companies that have enjoyed 20% or more annual growth in sales and earnings over the past three years, and for which analysts forecast total growth of 20% or more over the next two years. We'll pair up those predictions with the community stock research at Motley Fool CAPS, to get an idea of which companies the 135,000-plus members think have the best chances of beating the market over the long haul.
|
Company
|
3-Year Past Revenue Annual Growth %
|
3-Year Past EPS Annual Growth%
|
Est. 2-Year Future EPS Growth
|
Est. 2-Year Future Revenue Growth
|
CAPS Rating (Out of 5)
|
|
Netflix (Nasdaq: NFLX )
|
24%
|
23%
|
57%
|
42%
|
**
|
|
Allegiant Travel (Nasdaq: ALGT )
|
47%
|
88%
|
168%
|
35%
|
*
|
|
Synaptics (Nasdaq: SYNA )
|
32%
|
30%
|
68%
|
45%
|
****
|
|
Almost Family (Nasdaq: AFAM )
|
46%
|
55%
|
35%
|
45%
|
****
|
|
Amedisys (Nasdaq: AMED )
|
44%
|
37%
|
33%
|
37%
|
**
|
Source: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS.
Just because an analyst predicts that a company will feature fantastic growth opportunities doesn't mean those predictions will become reality. But their preferred picks do offer an excellent starting place for your own research into extreme buying opportunities. Below, we'll look at one of the lower-rated stocks on the list to see why it doesn't rise higher in investors' estimation, despite being a sales and profits machine.
Getting into gear
To borrow a phrase from Mark Twain, periodic reports of Netflix's death have been greatly exaggerated. Whether it's squaring off against Blockbuster (NYSE: BBI ) , Wal-Mart, or Amazon, the online movie rental purveyor has been counted out so many times that Gene Tunney's "long count" boxing match against Jack Dempsey seems fleeting in comparison.
There's still a long list of potential threats to Netflix' championship belt, from kiosk rental agent RedBox to video-on-demand through cable channels, all vying for a chance to supplant Netflix after the demise of the DVD. Netflix CEO Reed Hastings admits the mail market may peak in as little as four years, but he's not content to wait for someone to knock him down. His company has teamed up with TiVo (Nasdaq: TIVO ) , Microsoft, and others to stream its content to viewers with set-top boxes, Blu-ray players, and other external devices. It's even signed on with TV makers VIZIO and LG to have an app built into the set that will allow viewers to access Netflix's content.
While CAPS member ReadEmAnWeep still considers Netflix overrated, JaspersPicks sees little reason for the movie rental company to lose its juggernaut status:
Great fundamentals. Not getting stuck in the current economic muck, picking up plenty of space in the market to stretch out their legs and get comfortable for a long while. Earnings, sales and revenues all growing at a good clip. Currently their margin is 6.4% which is way ahead of their industry. If they could keep growing that little by little while their sales are growing then those earnings could really take off. Estimates are increasing and they have a history of positive surprises. Little debt and plenty of cash. CEO alone has $80 million invested.
I am both a happy netflix customer and optomistic netflix investor. Keeping one eye on their margins and the other the movies they send me.
Netflix has handily outperformed the other 25 companies comprising the CAPS Internet and Catalog Retail sector, rising more than 5% for the past month, compared to the average 2% decline for the sector.
Headed for greater growth?
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Why not head over to the completely free CAPS service and let us hear what you've got to say about these or any other promising growth stocks?
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