Investors looking for high returns are likely to benefit from adding stocks with a robust liquidity level, as it promotes business growth. Liquidity primarily determines a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents. These stocks have always been on investors’ radar owing to their potential to provide strong returns.
Investors can consider adding four top-ranked stocks like DXP Enterprises, Inc. DXPE, Ubiquiti Inc. UI, HubSpot, Inc. HUBS and EverQuote, Inc. EVER to their portfolios to boost returns.
However, one should be alert before investing in such stocks. While a high liquidity level may imply that the company is clearing its dues at a faster rate compared with peers, it may also indicate that the company is failing to use assets efficiently.
Hence, one may consider a company’s efficiency level in addition to its liquidity for identifying prospective winners.
Measures to Identify Liquid Stocks
Current Ratio: It measures current assets relative to current liabilities. The ratio gauges a company’s potential to meet short- and long-term debt obligations. A current ratio — the working capital ratio — below 1 indicates that the company has more liabilities than assets. A high current ratio does not always suggest that the company is in good financial shape. It may also indicate that the firm failed to utilize its assets significantly. Hence, a range of 1-3 is considered ideal.
Quick Ratio: Unlike the current ratio, the quick ratio — the “acid-test ratio” or “quick assets ratio” — indicates a company’s ability to pay short-term obligations. It considers inventory, excluding current assets relative to current liabilities. A quick ratio of more than 1 is desirable, like the current ratio.
Cash Ratio: This is the most conservative ratio among the three, considering cash and cash equivalents and invested funds relative to current liabilities. It measures a company’s ability to meet existing debt obligations using the most liquid assets. Though a cash ratio of more than 1 may suggest sound financials, a higher number may indicate inefficiency in cash utilization.
A ratio greater than 1 is always desirable but may not always represent a company’s financial condition.
Screening Parameters
To pick the best of the lot, we have added asset utilization — a widely used measure of a company’s efficiency — as one of the screening criteria. Asset utilization is the ratio of total sales in the past 12 months to the last four-quarter average of total assets. Though this ratio varies across industries, companies with a ratio higher than their industries can be considered efficient.
We added our proprietary Growth Style Score to the screen to ensure these liquid and efficient stocks have solid growth potential.
Current Ratio, Quick Ratio, and Cash Ratio between 1 and 3: While liquidity ratios greater than 1 are desirable, significantly high ratios may indicate inefficiency.
Asset utilization is more significant than the industry average: Higher asset utilization than the industry average indicates a company’s efficiency.
Zacks Rank equal to #1: Only Strong Buy-rated stocks can get through. You can see the complete list of today’s Zacks #1 Rank stocks here.
Growth Score less than or equal to B: Back-tested results show that stocks with a Growth Score of A or B handily beat other stocks when combined with a Zacks Rank #1 or 2 (Buy).
These criteria have narrowed the universe of more than 7,700 stocks to only 10.
Here are four of the 10 stocks that qualified the screen:
DXP Enterprises is one of the foremost products and service distributors that adds value and total cost savings solutions to industrial clients across Canada, Mexico, the United States and Dubai.
The company’s performance is gaining from moderating inflationary pressure and varied spending across end markets. In the last reported quarter, revenues improved 12.8% year over year to $472.9 million. Healthy execution of the growth strategy and benefits from acquisition are other tailwinds. In November 2024, DXPE acquired two companies — Burt Gurney & Associates and MaxVac Inc. These acquisitions were funded by utilizing cash on the balance sheet. These companies offer value-added products and services to water and vacuum pump verticals.
The Zacks Consensus Estimate for DXPE 2024 earnings is pegged at $4.07 per share, suggesting an improvement of 14.3% in the past 60 days. The company has a Growth Score of A.
Ubiquiti, along with its subsidiaries, offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. Its service-provider product platforms offer carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing. Enterprise product platforms provide wireless local area network infrastructure, video surveillance products and machine-to-machine communication components.
Ubiquiti reported strong first-quarter fiscal 2025 results, with the top and bottom lines surpassing the respective Zacks Consensus Estimate. The company is benefiting from solid growth in the Enterprise Technology segment, backed by healthy demand in North America, Europe and the Middle East and Africa regions. Its strategy of consistent dividend payments while maintaining a sustainable payout ratio is positive.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $7.30 per share, up 1.8% in the past 60 days. The company has a Growth Score of A.
HubSpot provides inbound marketing and sales application over the cloud. The software-as-a-service or SaaS vendor helps businesses attract more customers through search engine optimization, social media, blogging, website content management, marketing automation, email, Customer Relationship Management, analytics and reporting.
HubSpot’s growing customer base, cross-selling opportunities, the One HubSpot initiative and expanding international footprint are key positives. The company has rolled out multiple updates to its Sales Hub product, including a low-priced Starter tier and improvement to its sales engagement tools to make them more affordable for growing sales teams. Its AI-powered content marketing solutions, such as content remix and GPT-powered chatbots, are gaining popularity. The acquisition of Cacheflow will likely bolster customer engagement in Commerce Hub.
The Zacks Consensus Estimate for HUBS’ 2024 earnings of $8.00 per share has remained unchanged in the past seven days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 15.4%, on average.
EverQuote, headquartered in Cambridge, MA, is an online insurance marketplace. The company's websites allow consumers to shop for auto, home, renters and life insurance.
EverQuote is gaining from its exclusive data asset and technology, deepened focus on core P&C markets and a robust financial profile. It is also focused on streamlining traffic operations, boosting AI-powered bidding solutions, and rolling out advanced agent technology platforms. These position it well for long-term growth. Recovery in automotive and other insurance verticals, given auto carrier recovery and growth in revenue per quote request, bodes well. In the last reported quarter, total revenues of $144.5 million increased 163% year over year.
The Zacks Consensus Estimate for EVER’s 2024 earnings is pegged at 73 cents per share, unchanged in the past 30 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 149.6%, on average.
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Disclosure: Officers, directors and employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies is available at: https://www.zacks.com/performance.
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