When looking at stocks in the retail sector, sales trends should be high on the list of things to consider. Retail stocks rely primarily on sales as their source of profits, so retailers with strong sales trends should not be overlooked.
We ran a screen on the retail sector with this idea in mind. We first screened for stocks with high liquidity, measured by current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.
We then screened for those stocks with strong sales trends, comparing growth in revenue to growth in accounts receivable over the last year. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables the healthier the company's revenue.
We screened for stocks seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
Do you think these retailers will continue to see strong revenue growth? Use this list as a starting point for your own analysis.
List sorted by increase in revenue over the last year.
1. Movado Group, Inc. (MOV): Designs, sources, markets and distributes fine watches and jewelry. Market cap at $740.7M, most recent closing price at $29.01. Current ratio at 5.01. Revenue grew by 21.2% during the most recent quarter ($122.41M vs. $101M y/y). Accounts receivable grew by 2.44% during the same time period ($61.23M vs. $59.77M y/y). Receivables, as a percentage of current assets, decreased from 15.94% to 14.15% during the most recent quarter (comparing three months ending 2012-01-31 to three months ending 2011-01-31).
2. Carter's, Inc. (CRI): Designs, sources and markets branded children's wear. Market cap at $3.24B, most recent closing price at $54.74. Current ratio at 6.6. Revenue grew by 17.62% during the most recent quarter ($551.66M vs. $469M y/y). Accounts receivable grew by 11.63% during the same time period ($178.67M vs. $160.06M y/y). Receivables, as a percentage of current assets, decreased from 23.79% to 22.75% during the most recent quarter (comparing 13 weeks ending 2012-03-31 to 13 weeks ending 2011-04-02).
3. Guess' Inc. (GES): Engages in the design, marketing, distribution and licensing of apparel and accessories for men, women and children. Market cap at $2.62B, most recent closing price at $28.87. Current ratio at 3. Revenue grew by 2.5% during the most recent quarter ($775.84M vs. $756.91M y/y). Accounts receivable grew by -4.99% during the same time period ($340.6M vs. $358.48M y/y). Receivables, as a percentage of current assets, decreased from 30.81% to 27.% during the most recent quarter (comparing three months ending 2012-01-28 to three months ending 2011-01-29).
*Accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.