雅虎香港財經 4 Factors That Drive Share Outperformance
Investors are always searching for stocks that deliver market-beating gains. And many stocks have done precisely that over the last several years.
Specifically, three stocks – Crocs CROX, Wingstop WING, and Nvidia NVDA – have all outperformed the S&P 500 over the last five years, as illustrated below.
Image Source: Zacks Investment Research
It raises a valid question – what drives market outperformance? Let’s take a closer look at a few common traits among the companies.
1. Robust Sales Growth is Key
Sales growth is vital for a company’s shares to outperform, precisely what all three companies mentioned above have enjoyed. Strong revenue generation allows companies to achieve scaling efficiencies, generate continuous shareholder value, and many other clear benefits.
Nvidia
Image Source: Zacks Investment Research
Crocs
Image Source: Zacks Investment Research
Wingstop
Image Source: Zacks Investment Research
2. Margin Expansion Leads to Higher Profits
Margin expansion generally pleases the market, letting investors know that a company is squeezing more out of each dollar of sales. It commonly indicates that a company is operating more efficiently, with better cost controls and other operational processes driving improved financial health.
Wingstop has enjoyed notable margin expansion, as we can see illustrated below. Please note that the chart is on a trailing twelve-month basis.
Image Source: Zacks Investment Research
Pricing power can also come into play, as margin expansion can reflect that a company can increase prices without an outsized negative impact on sales, which is obviously a positive sign for investors and the company alike.
For example, over the last several years, we’ve seen many companies flex their pricing power, namely subscription services such as Netflix and Spotify, without them seeing a notable drop in subscriptions.
3. 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 is the clear-cut example of this favorable development, whose innovation within artificial intelligence (AI) has launched shares and put it at the forefront of market commentary.
The company’s Data Center sales have been robust, melting higher throughout the last several periods.
4. 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.
Nvidia, Wingstop, and Crocs all currently sport favorable Zacks Ranks, which helps explain their recent outperformance. Below is a chart illustrating the revisions picture for Wingstop, with expectations moving notably higher across all timeframes.
Image Source: Zacks Investment Research
Bottom Line
All investors look to reap outsized gains, precisely what all three companies above – Crocs CROX, Wingstop WING, and Nvidia NVDA – have delivered over the last three years.
When it comes to outperformance, several factors, including robust sales growth, margin expansion, innovation, and favorable earnings estimate revisions, are all contributing factors.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
