Investors are always looking for stocks that deliver robust gains, trying to squeeze the most out of their buck. Of course, finding big-time winners is much easier said than done, but investors can still deploy a basic framework that puts them on the path to reaping outsized gains.
But what drives market outperformance?
Let’s take a closer look at a few common traits among companies delivering outsized gains.
Sales Growth Remains Key
Sales growth is vital, as it’s the foundation of generating profits. Strong revenue generation allows companies to achieve scaling efficiencies, generate continuous shareholder value, and many other clear benefits.
A clear-cut example of this has been Micron MU over the last year, whose shares have soared on red-hot demand for memory solutions amid the AI buildout.
Margins Are Critical
Margin performance reveals how efficiently a company operates, showing whether it’s extracting more profit from each dollar of sales. Expansion indicates that a company is operating more efficiently, with better cost controls and other operational processes driving improved financial health.
Innovation Keeps You Ahead of the Competition
Innovation is crucial for a company to stay relevant, helping it maintain and expand its current market share. Nvidia NVDA is a clear-cut example of this favorable development, whose innovation within artificial intelligence (AI) has launched shares and put it at the forefront of market headlines.
Earnings Estimates Drive Near-Term Performance
Favorable earnings estimate revisions are key for a stock to move higher, precisely where the Zacks Rank comes into play.
The Zacks Rank uses four factors related to earnings estimates to classify stocks into five groups, ranging from ‘Strong Buy’ to ‘Strong Sell.’ Importantly, it allows individual investors to take advantage of trends in earnings estimate revisions and benefit from the power of institutional investors.
Bottom Line
All investors look to reap outsized gains.
When it comes to outperformance, several factors, including robust sales growth, margin expansion, innovation, and favorable earnings estimate revisions, are all contributing factors.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>Micron Technology, Inc. (MU) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
