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.
Below are a handful of companies that have enjoyed 15% or more annual growth in sales and earnings over the past three years, and for which analysts forecast total growth of 15% or more over the next two years. We'll then pair up those predictions with the community stock research at Motley Fool CAPS, to get an idea of which companies the 145,000-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) |
|---|---|---|---|---|---|
|
Apollo Group |
19% |
22% |
20% |
19% |
** |
|
Celgene |
49% |
80% |
29% |
20% |
**** |
|
Medifast |
28% |
19% |
67% |
41% |
** |
|
Quality Systems |
26% |
16% |
20% |
20% |
**** |
|
Smith & Wesson Holding |
27% |
33% |
31% |
17% |
*** |
Sources: 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, so let's see why the operations of some of these companies may or may not be held in high esteem by investors -- considering they appear to be sales and profits machines.
Grinding down the competition
"Never pick a fight with someone who buys ink by the barrel" is an old political adage, meaning you shouldn't argue with the media because they can go after you all day long. In the Internet age, when bytes are more plentiful than ink, it's still a good maxim that many should abide by, but which diet drink maker Medifast probably hasn't yet learned.
Although the company's reputation was assailed last year by the Fraud Discovery Institute's charge that its multilevel marketing business model is little more than a pyramid scheme, that's nothing new when it comes to MLMs. Pre-Paid Legal
"The best revenge is living well" is another good motto Medifast could have taken to heart. Considering its stock quadrupled in value in the year since FDI first accused it of being a scam, Medifast could rightly figure that its shares would recover again this time, too.
Now, instead of debating Medifast's financial position, investors like CAPS All-Star member CaptBS have a reason to debate whether there are other reasons for the company to implode:
More importantly, the sustainability of the company's business model strikes me as questionable, as Medifast has derived an increasingly large part of its revenue from its "Take Shape for Life" coaching program. Although this program is one of the company's main differentiators, its capability to generate new revenue relies heavily on the ability of its weight-loss coaches to recruit other coaches and clients (for a commission). Some have gone as far as calling this a pyramid scheme (take your favorite salt-shaker to www.medifraud.net), but whether or not you agree with that assessment, the key takeaway is that the revenue from this line of business will eventually plateau, if not enter into a downward spiral.
So far, the allegations haven't made too much of an impact, as 79% of the CAPS members rating the diet company believe it will continue to outperform the markets. Why not head over to the Medifast CAPS page and give us the skinny on this diet drink maker?
No Great Depression
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. At the completely free CAPS service, you can let us hear what you've got to say about these, or any other stocks you think are worth discussing!
