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 then pair up those predictions with the community stock research at Motley Fool CAPS, to get an idea of which companies the 130,000-plus members think have the best chances of beating the market over the long haul.
|
Company
|
3-Year Past EPS Annual Growth
|
3-Year Past Revenue Annual Growth
|
Est. 2-Year Future EPS Annual Growth
|
Est. 2-Year Future Revenue Annual Growth
|
CAPS Rating (out of 5)
|
|
Advanced Battery Technologies (Nasdaq: ABAT )
|
148%
|
96%
|
94%
|
171%
|
**
|
|
Buffalo Wild Wings (Nasdaq: BWLD )
|
37%
|
27%
|
52%
|
57%
|
***
|
|
Goldcorp (NYSE: GG )
|
32%
|
32%
|
47%
|
29%
|
***
|
|
salesforce.com (NYSE: CRM )
|
27%
|
48%
|
129%
|
36%
|
*
|
|
Shanda Interactive (Nasdaq: SNDA )
|
97%
|
24%
|
44%
|
55%
|
***
|
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.
Tippling at the speakeasy
Showing just how inefficient markets can be, salesforce.com shares sold off after an analyst-beating quarter also featured some scary lower expectations on future sales. Where's the imbalance? Even though the company sees future profits being higher than the consensus forecast, the market apparently focused on the lower revenue outlook in pushing share prices down.
Now, there is something to be said for investor caution here. Growth in bookings at salesforce.com has slowed substantially from its past pace, and the company has lowered guidance on revenues for two quarters in a row. Still, the company claimed its status as the first billion-dollar cloud computing company last quarter and sees itself beating SAP (NYSE: SAP ) and Oracle (Nasdaq: ORCL ) to the punch in being the first to achieve $1.2 billion in run rate revenues.
Investors remain divided about the Motley Fool Rule Breakers recommendation. CAPS members like elboliviano find the flamboyance of CEO Marc Benioff to be an invigorating tonic necessary to keep the innovative company moving forward, as this March pitch describes:
A flamboyant CEO that instills his passion to the workforce. Great technology. Is making us wish that we live in the Cloud. A business plan that is working.
On the other hand, top-rated CAPS All-Star joker245 said last month that even with its stock price having been halved, salesforce.com still sports lofty valuations which he believes can't be maintained:
Clearly, the sales areren't coming and the valuation is still too high. And then you look at the insiders blowing out their positions. This has a thumbs down written all over it.
Yet that pits him against some other smart Fools like TMFDitty, who underscored salesforce.com's ability to generate mountains of free cash flow in this pitch from last August:
I've said for some months now that everybody else is wrong, but I'm right. Time to put my reputation where my mouth is. ... Growth is projected at 42% going forward, while H1 2009 growth in FCF was 120%. The stock's a steal. Period.
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. 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 stocks that you think we should fill up our dance card with?
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