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 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 |
Est. 2-Year Future EPS Growth |
Est. 2-Year Future Revenue Growth |
CAPS Rating (out of 5) |
|---|---|---|---|---|---|
|
American Dairy (NYSE:ADY) |
44% |
21% |
585% |
140% |
**** |
|
Buffalo Wild Wings (NASDAQ:BWLD) |
27% |
37% |
55% |
56% |
*** |
|
EZCORP (NASDAQ:EZPW) |
23% |
34% |
39% |
45% |
***** |
|
MetroPCS Communications (NYSE:PCS) |
35% |
21% |
47% |
43% |
*** |
|
Zhongpin |
81% |
34% |
62% |
74% |
***** |
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, since they appear to be sales and profit machines.
Tippling at the speakeasy
It's easy to see why prepaid calling plans have investors thinking MetroPCS is geared for growth. When you get your wireless bill in the mail from your post-paid plan, the fees and charges can really add up. Stuck in the grips of a recession, consumers looking to cut costs are turning to prepaid plans to save. According to the market researchers at New Millennium Research Council, about 17% of wireless phone users switched to a prepaid service because they were concerned about their job and the economy.
Unfortunately, they’re not heading to MetroPCS, or even to Leap Wireless (NASDAQ:LEAP). Both of those prepaid services reported much worse-than-expected results recently, with MetroPCS adding a little more than half of what analysts had been forecasting it would and a third less than what it added in the first quarter.
That's because competition is intensifying. Sprint Nextel (NYSE:S) is buying Virgin Mobile to complement its Boost Mobile service, while Verizon (NYSE:VZ) is selling wholesale minutes to Tracfone Wireless, which offers prepaid wireless calling services. Forget the iPhone and its gee-whiz technology -- prepaid is where the action is. Analysts at Frost & Sullivan say it's possible prepaid subscribers could jump to 25% to 30% of the North American market by the end of next year.
With such positive trends facing the industry, analysts are ruminating on whether MetroPCS and Leap ought to reignite the flame of merger that was extinguished two years ago. It could be a case of less is more, where they could achieve more as a single entity than as enemy combatants in a war of attrition.
Some MetroPCS investors are gung-ho about the deal. CAPS member Jmachine views it as virtually a done deal, but some Leap Wireless investors say the company can still turn things around on its own. CAPS member stockfreak1 says the carrier's ability to increase revenues at this difficult time points to further progress in the future:
In a time when revenue has been blasted to smithereens LEAP has been able to increase revenue by $70 million from 4Q2008 to 1Q2009. It's a pretty significant "LEAP." 2Q2009 wasn't that stunning, but revenue still increased, and the majority of the writedowns are taken on depreciation. This could LEAP again.
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 with which you think we should fill up our dance card?
