Rules of the Game: Burgeoning Sales

 | Dec 13, 2012 | 9:00 AM EST  | Comments
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Earlier this week, I wrote about a couple of stocks showing accelerating sales growth, a key metric for which I screen when I'm building portfolios.

Most of the time -- and this week is no exception -- these revenue scans yield a number of small- and mid-cap names that show the best growth rates. Larger, more mature companies typically grow more slowly. That's fine, and it doesn't mean I'll necessarily pass up a steady large-cap in favor of a smaller company in high-growth mode.

But when I'm looking for the elements that make up a diversified equity portfolio, I like to know where the growth potential lies. So in today's column, I'll drill down and look at some of the mid-caps showing the best rates of sales growth in recent quarters.

Online travel was in the news this week as Liberty Interactive (LINTA) acquired a majority stake in TripAdvisor (TRIP). Last month, Priceline (PCLN) said it would acquire fellow online travel firm Kayak (KYAK) for $40 per share in cash and stock.

One established name in the category is Expedia (EXPE). The stock has had a terrific 2012, with the price more than doubling this year. It closed Wednesday at $60.57, 5% above its 50-day average, and below its Nov. 29 high of $62.80.

Expedia goes ex-dividend Thursday. Typically stocks decline on the ex-div date, and roughly by the amount of the dividend. Expedia's dividend is $0.52 per share. Any temporary, dividend-related decline does not affect my longer-term outlook for the stock.

The company's growth has accelerated in the past three quarters, from $787.1 million to $1.2 billion most recently. In the current quarter, analysts expect a top line of $929.33 million, which would mark a gain of 18% over the prior year, as well as continue the trend of earnings-growth acceleration.

Because the stock had such a rapid rise in 2012, at this juncture it would be constructive for the shares to pull back to the 200-day moving average. The stock has not fallen beneath that line for more than a year, so a retreat to flush out some weak holders seems somewhat overdue.

Another mid-cap that registered on my revenue-growth scan was Web-content optimizer Akamai (AKAM). This is an interesting case, because the stock is making something of a technical comeback. Shares tumbled 32% in 2011, and only gains in November and December of last year rescued it from an even worse decline.

This year, Akamai has rebounded with a gain of 23%.

Year-over-year revenue has accelerated in the past four quarters, climbing from $281.9 million to $345.3 million. In the current quarter, analysts have pegged sales at $381.21 million, which would be an 18% year-over-year gain. 

The stock cleared a two-month consolidation Wednesday, closing at $39.97. Wednesday's trade also brought a 52-week session high of $40.61. Current levels are a bit frothy, but the stock could offer a new entry point on the next pullback to a short-term moving average.

The stock got 200-day-line support earlier this month, a good signal that institutional investors were regaining confidence in the stock, rather than bailing out.

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