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Deep Dive: Check out these stocks: 25 companies that have incredible sales growth — and pricing power

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The long runup for technology stocks has been driven by double-digit sales increases. During first-quarter earnings season, all of the biggest tech companies hit home-runs. And if a company can grow sales at that pace while also increasing prices, so much the better for its shareholders.

Here are the six largest companies in the S&P 500 Index
SPX,
+0.07%

by market capitalization, with increases in sales for the first calendar quarter of 2021 from the year-earlier quarter:

Company Increase in sales – Q1, 2021
Apple Inc.
AAPL,
+0.20%
54.1%
Microsoft Corp.
MSFT,
-0.53%
19.1%
Amazon.com Inc.
AMZN,
-1.25%
43.8%
Alphabet Inc.
GOOG,
+0.11%

GOOGL,
+0.34%

23.7%
Facebook Inc. Class A
FB,
-1.05%
47.6%
Tesla Inc.
TSLA,
-0.39%
73.6%
(FactSet)

There are many reasons for such success among the “big six”:

  • For Apple, there was double-digit sales growth in all geographic segments and all product categories, with particularly success in China, where the pandemic hurt sales during the first quarter of 2020.
  • Microsoft, Alphabet and Amazon continue to feast off the transition of companies to cloud computing — a trend analysts expect to continue for many years.
  • Amazon has also benefitted from the accelerated transition to online shopping, and it is too early to say how much of this trend may be reversed by the reopening of the economy.
  • Tesla remains the only company that has hit critical mass when it comes to producing and selling electric vehicles.

But what about pricing power?

A company’s gross margin is its net sales, less the cost of goods or services sold, divided by sales. Net sales are sales minus returns and discounts, such as coupons. The cost of goods or services sold includes the actual costs for making the items sold or providing the services sold. It doesn’t reflect other overhead expenses. It is a useful measurement of pricing power, and a combination of high sales growth and improved gross margin is a good sign.

Gross margin isn’t used for banks and insurance companies, which have different measures of profitability.

Highest sales growth with improved gross margins

Among the S&P 500, about 65% of companies had reported results for fiscal quarters ended Feb. 13 or later through May 4.

Among those companies, here are the 25 that increased sales at least 40% while improving gross margins from a year earlier. (You may have to scroll the table to see all the data):

(FactSet)

Getting back to our first list of the six largest companies, four made the list of best sales growers with improved gross margins. Microsoft and Alphabet didn’t make the cut because their sales growth numbers, while impressive, weren’t high enough. Both companies’ gross margins improved.

Wall Street’s opinion

Here’s a summary of opinion about the 25 companies among analysts polled by FactSet:

(FactSet)

Amazon is the Wall Street favorite among analysts polled by FactSet, with 98% of analysts (49 out of 50) rating the shares a buy or the equivalent, and only one analyst having a neutral rating. The stock closed at $3,312 on May 4. The consensus price target is $4,186, implying 26% upside potential over the next 12 months.

The company on the list with the most aggressive price target is Enphase Energy Inc.
ENPH,
-0.74%

The shares closed at $127.83 on May 4 and the consensus price target is $195.89, which implies upside potential of 53% over the next year.

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