Investors are always on the hunt for stocks that deliver market-beating gains. 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 returns.
But what drives market outperformance?
Let’s take a closer look at a few common traits among companies delivering outsized gains over the past year.
Robust Sales Growth
Sales growth is vital for a company’s shares to outperform, 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 Palantir PLTR over the last year, whose shares have climbed more than 370% over the past year. The company’s sales growth has been driven by the AI frenzy, posting double-digit percentage revenue growth rates in ten consecutive periods.
Below is a chart illustrating Palantir’s sales on a quarterly basis.
Image Source: Zacks Investment Research
Margin Expansion
Margin expansion pleases the market, essentially letting investors know that a company is extracting more value from each dollar of sales. It indicates that a company is operating more efficiently, with better cost controls and other operational processes driving improved financial health.
Netflix NFLX has enjoyed notable margin expansion over recent periods, with shares up 180% over the last year. Netflix overall continues to fire on all cylinders, regularly crushing our consensus expectations as of late.
Below is a chart illustrating Netflix’s margins on a trailing twelve-month basis.
Image Source: Zacks Investment Research
Innovation Keeps You Ahead
Innovation is crucial for a company to remain relevant, enabling it to maintain and expand its current market share. NVIDIA NVDA is an obvious example of this favorable development, whose innovation within artificial intelligence (AI) GPUs has launched shares higher over the past several years.
Below is a chart illustrating NVIDIA’s sales on a quarterly basis.
Image Source: Zacks Investment Research
Bottom Line
All investors look to reap outsized gains. When it comes to outperformance, robust sales growth, margin expansion, and innovation are all contributing factors.
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Netflix, Inc. (NFLX) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).