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, we can look for companies whose rising revenues and profits inspire analysts' confidence in continued future growth. Looking among those companies 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 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
|
Estimated 2-Year Future EPS Growth
|
Estimated 2-Year Future Revenue Growth
|
CAPS Rating (Out of 5)
|
|
Chipotle Mexican Grill (NYSE: CMG )
|
25%
|
46%
|
64%
|
31%
|
***
|
|
Illumina (Nasdaq: ILMN )
|
78%
|
101%
|
93%
|
50%
|
***
|
|
Intuitive Surgical (Nasdaq: ISRG )
|
46%
|
24%
|
29%
|
33%
|
****
|
|
New Oriental Education (NYSE: EDU )
|
46%
|
193%
|
83%
|
61%
|
**
|
|
Strayer Education (Nasdaq: STRA )
|
22%
|
21%
|
58%
|
53%
|
*
|
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, that doesn't mean it will happen. But their preferred picks do offer an excellent starting place for your own research into extreme buying opportunities, so let's see why some investors consider these picks to be sales and profits machines.
Tippling at the speakeasy
The recession was supposed to mean that hospitals weren't investing in high-cost medical devices. Analysts had thus forecast that Intuitive Surgical would sell only about 67 of its da Vinci robotic surgical systems this quarter -- a dramatic decline from the 85 systems it sold in the year-ago quarter. Its stock reflected those dour expectations, having declined by 27% over the past 12 months. Another surgical-robotics company, Accuray (Nasdaq: ARAY ) , maker of the CyberKnife, has also felt the impact of the lowered outlook for robotic procedures: Its shares have fallen by 14% over the last year.
Intuitive Surgical's earnings report, however, showed that not only were da Vinci sales holding up well -- the company sold 76 units -- but also that the product mix was composed of more of its new, more expensive da Vinci Si models. Intuitive saw net income surge 22% on a 19% increase in revenue.
The company has always carried a hefty premium to earnings -- a reflection of the view that an increasing volume of procedures would generate additional sales of units and recurring accessory sales. But at nearly 35 times forward earnings, Intuitive Surgical doesn't look cheap, and that's keeping some investors from thinking it's a buy. Says highly rated CAPS All-Star member KnightofShadows: "Love the technology and the company, but the recent 20% jump in the stock is unwarranted. Short-term pullback coming."
Chipotle Mexican Grill is another company that carries a lofty valuation at 24 times forward earnings -- no doubt an indication of the restaurant chain's ability to generate cash flow. While many of its rivals were reporting mixed or flat same-store sales, Chipotle saw comps rise by 1.7% in the quarter. Considering that McDonald's (NYSE: MCD ) is still running on the strength of its value-meal option and its comp growth has weakened over the past few years, Chipotle's efforts should stand out that much more.
CAPS member spensing believes Chipotle's real strength lies in its menu.
This company dominates the Mexican-style fast food market in the following ways: fresh ingredients and food style, simple menu offerings, clean restaurant designs, green/sustainable mentality, and down-right delicious food. I feel these things make Chipotle superior to Moe's, Freebirds, Taco Bell, Qdoba, etc.
The food is somewhat pricey, which is not good in the current economic climate. But I think the product is good enough to keep people coming back for more, regardless of the price.
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. Head over to the completely free CAPS service, and let us hear what you have to say about these or any other stocks that you think should be on our dance cards.
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