Those looking to invest their money in the stock market should look at more than a company's most recent quarter and fiscal full-year totals. Besides judging a company by its P/E ratio, investors should research a company's compound annual growth rate as well as its comparable-store sales growth rate to assess its continued progress in its industry. These metrics are particularly important because the longer the time period -- at least a few years -- the more telling the results.
Since it happens to be the season of holiday deals and promotions, investors are keeping a close eye on which retailers are getting the most traffic through their stores and e-commerce sites. Who is ultimately leading the way with the most annual sales growth along with the highest earnings growth: Macy's (M -2.03%), Kohl's (KSS -2.45%), Dillard's (DDS -0.85%), or J.C. Penney (JCPN.Q)?
Looking at a company's growth rate
At the end of each fiscal year, it is important to calculate a company's growth rate over the past three to five years as well as its comparable-store sales growth rate. A company's compound annual growth rate will tell investors how quickly or slowly a company has been growing for a set number of years. This figure allows investors to more easily decide if the company is worth investing in. A shareholder in a company will often sell his or her shares if the company has been losing ground rather than making headway.
Taking into account comparable-store sales
In addition, with every passing quarter and fiscal year, identifying a company's year-over-year comparable-store sales growth rate is beneficial in knowing how its same-store sales are doing. A company can have a high comparable-store sales growth rate, but only own a handful of stores, which doesn't say much. On the other hand, a combination of a large number of stores along with a positive and rising comparable-store sales growth rate evidences that a company is doing extremely well as a whole.
Leading the way in retail sales
Listed in the table below are the growth rates for the following retailers: Macy's, Kohl's, Dillard's, and J.C. Penney. These figures allow us to see which retailer has been growing the fastest and which is hardly growing at all.
|
Company Name |
Compound Annual Growth for Past 3 Fiscal Years |
FY 2012 Comparable Store Sales Growth |
FY 2011 Comparable Store Sales Growth |
|---|---|---|---|
|
Macy's |
3.48% |
3.7% |
5.3% |
|
Kohl's |
1.6% |
0.3% |
0.5% |
|
Dillard's |
2.48% |
4% |
4% |
|
J.C. Penney |
(9.9)% |
(25.2)% |
0.2% |
As one can see, Macy's has been the most consistent retailer in terms of growing overall sales and comparable-store sales. Kohl's, on the other hand, appears to be staying in place. Investors looking for a dynamic and growing company may want to take a pass on Kohl's. Dillard's, though, is actually doing reasonably well, especially compared to J.C. Penney or even Kohl's.
Like Macy's, Dillard's comparable-store sales growth for the past two fiscal years was pretty solid and the company's growth increased as a whole. It's no secret, though, that J.C. Penney has been struggling as its comparable-store sales diminished all-together. Hopefully, with J.C. Penney's latest business model and sales strategies in place, the company will be able to turn things around, and perhaps J.C. Penney's figures will look better in the next few fiscal years to come.
Foolish takeaway
With any good investment, looking at certain metrics is a good way to determine whether or not a company will be valuable to one's portfolio. Although compound annual growth and comparable-store sales are good prospects for investigation, they should not be the only measures accounted for in one's research on a company. Based on the information discussed above, investors would be wise to do more research on Macy's and Dillard's.
