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 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 |
|---|---|---|---|---|---|
|
Amazon.com (NASDAQ:AMZN) |
31% |
35% |
31% |
26% |
** |
|
Capella Education (NASDAQ:CPLA) |
23% |
37% |
39% |
22% |
** |
|
Health Grades (NASDAQ:HGRD) |
24% |
31% |
38% |
25% |
***** |
|
HMS Holdings (NASDAQ:HMSY) |
44% |
59% |
35% |
24% |
**** |
Sources: Capital IQ, a division of Standard & Poor's; Motley Fool CAPS.
Of course, an analyst's prediction that a company will feature fantastic growth opportunities doesn't mean those predictions will become reality. But analysts' 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.
A tall glass of water
You've heard of Black Friday. Maybe even Cyber Monday. Well, say hello to "Green Tuesday," the biggest online shopping day of the year. According to Web analytics firm comScore, e-commerce was the big winner this holiday season with sales rising 4% over the complete two-month shopping period of November and December.
Black Friday (Nov. 27) sales jumped 11%, while Cyber Monday (Nov. 30) sales were up just 5%, but the new Green Tuesday (Dec. 15) spending extravaganza soared 21%, with $913 million in revenues being spent. [comScore explains that Green Monday occurs on the Monday with at least 10 days prior to Christmas and tends to be the heaviest online spending day of the season. That was Dec. 14 this time around. Green Tuesday is the following day.]
Jewelry and watches were the big items consumers were looking for (up 20% for the two-month period), which bodes well for Blue Nile (NASDAQ:NILE), followed by consumer electronics (15%), a potential boon to Best Buy (NYSE:BBY), which should also benefit from gift card redemptions.
But when it comes to e-commerce, most people think of Amazon.com, and this holiday season the e-tailer hit a few tipping points: The Kindle e-reader achieved most-gifted-product status in Amazon's history and on Christmas Day it sold more e-books than physical ones for the first time ever.
There are a couple of caveats to that, of course. We don't know how many Kindles Amazon actually sells, though it's apparent from the strong demand Barnes & Noble (NYSE:BKS) has reported with its Nook that this new niche is sure to be a popular one for years to come. Also, considering the number of Kindles sold for Christmas, it's not surprising recipients would download a book to it.
I doubt whether that momentum will be maintained going forward. According to comScore, books recorded only a 6% increase between November and December.
I'm not convinced Amazon represents a good buying opportunity at these lofty valuations, though I concede the bulls present a good rebuttal in certain circumstances. Apparently I'm not alone, as more than a quarter of all CAPS members who have rated Amazon.com's stock peg it to underperform the market. journeyer77 says this could be the year the stock stumbles badly:
While I love Amzon.com, Amazon is approaching the price of [Apple] for a share of stock but its services and technology are not expanding nearly as rapidly. I predict it to fall off in 2010 and then climb again after its price has been adjusted by the market.
More than 4,300 CAPS members have rated the e-commerce outlet, but we're looking for your read on the situation. Head over to Amazon's CAPS page and write up your opinion on whether Amazon is up a creek without a paddle.
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 should be on our dance card?
