Wall Street is often criticized for paying too much attention to the
bottom line, but that focus is hard to fault right now.
Companies are reporting record profits in the first quarter, but it’s
getting increasingly difficult to find companies moving the revenue needle.
Less than half, 200, of the companies in the Standard & Poor’s 500 have
reported 5 percent or higher revenue gains in their most recent quarter, says
S&P Capital IQ. And just 131 have lifted revenue by 10 percent or more.
Slow-growing companies are dragging the average down even more. Revenue
growth of S&P 500 companies is expected to come in at just 1 percent when
the first-quarter earnings season winds down, well below the 5 percent earnings
growth during the period.
Cost-cutting and stock buybacks have kept profits moving higher despite
sluggish growth. But longer-term, investors are searching now for companies
that are finding ways to increase revenue, too.
“Revenue is
growing slowly because we’re in a 1 percent to 2 percent (economic growth)
environment,” says Doug Sandler of RiverFront Investment Group. “Revenue growth
is reflective of that.”
Investors
looking for companies boosting the top line are focusing on several themes,
including: