5 Stocks With Rapid Revenue Growth
Posted: July 25, 2016
Everyone likes companies with rapid sales growth.
But the stock market is like a horse race in which the fastest horses must wear the heaviest saddles. With stocks, the most successful companies sell for higher valuations, making it harder to win.
You need to limit how much you will pay for a stock, even if sales are booming. That’s why a year ago I said I wouldn’t touch Twitter Inc. (TWTR) or Tesla Motors Inc. (TSLA) “with a barge pole.”
In the next 12 months, Twitter shares dropped 49.8 percent while Tesla stock fell 16.6 percent.
In that same column, I recommended seven stocks with rapid revenue growth. My results were not a triumph. My total return was a loss of 7.3 percent for the 12 months ended July 21. By comparison, the Standard & Poor’s 500 Index was up 4.4 percent.
Energy curse
Unwisely, I chose three energy stocks among my seven. I said at the time, “Energy is severely out of favor and I suspect will remain so for at least another six months, probably longer.” Still, I usually judge my picks by how they do over 12 months, and it seems unfair to change for this occasion.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.
Rapid revenue growth, especially if it comes via acquisitions, has its hazards. For example, store chains opening a lot of new branches may struggle to maintain quality as they quickly add employees and locations. With acquisitions, there’s often a question of cultural fit.
Still, rapid growth can be a sign that a company is filling a need, or has a product or service that truly stands out from competitors.
Here are five stocks that display impressive sales growth, selling at what I consider a favorable price.
Toll Brothers
A luxury home builder, Toll Brothers Inc. (TOL) is benefiting from a resurgence of home building in the United States after a hideous decline in 2007-11. It stands out from other homebuilders in a few respects.
Its revenue growth has been about 24 percent a year the past five years. Management, led by Robert I. Toll, has a reputation for candor and plain speaking. And the average selling price of its homes is well above $700,000, versus about $300,000 for many competitors.
Baidu
Baidu Inc. (BIDU) is the largest internet-search company in China and also is engaged in e-commerce. In the past 10 years, its revenue growth rate has been 83 percent a year. Last year, that cooled off but was still a glowing 30 percent. The stock sells for 11 times earnings.
A few years ago, Americans couldn’t get enough of Chinese stocks. Today, most U.S. investors won’t touch them. Yet China is the world’s second biggest economy and is still among the fastest growing.
Michael Kors
A British purveyor of shoes, handbags and clothing, Michael Kors Holdings Ltd. (KORS) showed revenue growth of 43 percent a year in the past five years. Lately, sales growth has slowed and profit margins are pinched.
Like most brick-and-mortar retailers, Kors must contend with the movement of traffic to the Internet. The company has deliberately pursued a brick-and-mortar strategy, both by opening its own stores and by establishing departments within other stores. Despite these problems, I like it at 12 times earnings.
Antero Resources
Antero Resources Corp. (AR) is based in Denver, but drills for natural gas and oil in West Virginia, Ohio and Pennsylvania. In recent years, “Eastern gas” like Antero’s has been trapped on the East Coast because of lack of pipelines to carry it westward.
That has resulted in an East Coast gas glut and lower prices for Eastern producers. But with the development of new pipelines the situation is changing and Antero should get better prices.
Antero’s sales were $691 million five years ago but are well over $3 billion a year now.
Golden Entertainment
Based in Las Vegas, Nev., Golden Entertainment Inc. (GDEN) owns three casinos and supplies “distributed gaming” devices to bars, restaurants, gas stations and grocery stores in various parts of Nevada. Five years ago its revenue was less than $36 million; the past four quarters it has been $255 million.
Earnings have been spotty, with losses in three of the past six years. Last year, however, it made $24 million, a record for this little company. The stock sells for eight times earnings.
Disclosure: I own Antero Resources for many of my clients and Golden Entertainment for one.