What makes growth such an important factor
- Economies of scale: The number one benefit of revenue growth for a company consists of scale effects. It is the simple concept of revenue growing faster than cost. As a result, a company’s bottom line, i.e. net profit, grows disproportionately quicker than revenue on a relative basis. Which in turn boosts the company’s value.
- Market share gain: If a company grows faster than its industry and peers, it takes market share. There are many good reasons for gains in market shares, such as a great product or even great marketing. In some instances, gains in market share can be merely the consequence of massive advertising spend and may vanish quickly if the company does not sell a superior product or service.
All growth is not created equal.
A screen recipe for growth stocks
How to screen for stocks with strong revenue and earnings growth
- Growth Score > 80/100
- Forward revenue growth > 10%
- Forward earnings growth > 10%
- Five year compound annual revenue growth > 7%
- Five year compound annual earnings, growth > 10%
This screen setting yields 56 stocks for the Russell 3000.
Screening for profitable growth
Screening for a solid financial situation
Finally, a fast-growing company must not have excessive debt levels or inadequate liquidity. These somewhat advanced stock research concepts are conveniently captured in the Financial Position Score. In order for our growth companies to support high growth rates over the medium to long-term, they must be well capitalized.
We can weed out the weaker companies by setting a minimum financial position score of 50/100 so that we end up with a high-potential shortlist of 22 high growth companies.
Screening with Ziggma Stock Scores yields huge time savings
A Ziggma Premium subscription ($7.49/month on the yearly plan and $9.90 on the monthly plan) truly gives you the opportunity to take your stock screening to the next level. Along with many other features, it gives you full access to use Ziggma’s proprietary Ziggma Stock Scores in the stock screener. This has two major benefits:
- You can hardly screen more comprehensively. The Ziggma Stock Scores capture literally all relevant financial metrics. Our proprietary algorithm scores stocks against their peers on 40 different key performance indicators over a multi-year period.
- You can use sub-scores to screen in accordance with your investment approach. If you are a growth investor, then the growth sub-score is what you will want to use. Value investors will want to screen for stocks with Valuation sub-score greater than 90, for example.
Narrowing down our screener results to stocks with a Ziggma Stock Score of 90 or higher leaves us with shortlist of 17 powerhouse growth stocks.
As a Premium user you can now save this screen configuration to check back some other time and find out whether any new stocks fit these search criteria.
We hope that you found this article instructive. It demonstrates how conveniently Ziggma’s free stock screener lets you search for great growth stocks. This is very much in line with our objective to provide self-directed investors with best-in-class data and a streamlined stock research experience – no matter whether you are on the free plan or the Premium plan.