A company with strong liquidity always has the potential to provide higher returns as stable financial resources help fuel business growth. It reflects a company’s capabilities to meet debt obligations by converting its assets into liquid cash and equivalents.

Investors can consider adding stocks like Abercrombie & Fitch Co. ANF, EverQuote, Inc. EVER, Sezzle Inc. SEZL and Angi Inc. ANGI to their portfolios to boost returns.

However, one should be careful of investing in a stock with a high liquidity level as it may also indicate that the company is failing to utilize its assets efficiently.

Apart from sufficient cash in hand, investors might also consider a company’s capital deployment abilities before putting their money on the stock. A healthy company with favorable liquidity may prove to be a profitable pick for one’s portfolio.

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 eight.

Here are four stocks of the eight stocks that qualified the screen:

Abercrombie & Fitch is a specialty retailer of premium, high-quality casual apparel for men, women and kids. The company has a vast network of 757 stores across North America, Europe, Asia and the Middle East. It operates a few e-commerce sites, including www.abercrombie.com, www.abercrombiekids.com, www.hollisterco.com and www.gillyhicks.com.

ANF’s performance is gaining from substantial growth across regions and brands, especially in the Americas and the Abercrombie brand. Backed by the strong first-half fiscal 2024 results, Abercrombie raised its sales and operating margin views for fiscal 2024. The company anticipates fiscal 2024 net sales to increase 12-13% from the $4.3 billion reported in the prior year. It earlier expected net sales growth of 10% for fiscal 2024. However, the company's fiscal 2024 is one week shorter than fiscal 2023. Abercrombie anticipates this lost selling week to reduce fourth-quarter sales by $80 million or 5.5 percentage points. For the fiscal year, the retailer expects sales impacts of $50 million or 1.2 percentage points.

The Zacks Consensus Estimate for its fiscal 2024 earnings is pegged at $10.26 per share, unchanged in the past seven days. ANF has a Growth Score of A and a trailing four-quarter earnings surprise of 28%, on average.

EverQuote, headquartered in Cambridge, MA, is an online insurance marketplace. Through its Internet websites, the company operates an online marketplace for consumers shopping for auto, home and 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. 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.

The Zacks Consensus Estimate for EVER’s 2024 bottom line is pegged at earnings of 57 cents per share, unchanged in the past seven days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 144.9%, on average.

Sezzle is a fintech company that operates a digital payment platform mainly across the United States and Canada. This platform offers customers interest-free installment plans at online stores and certain in-store locations. In the last reported quarter, revenues jumped 60% year over year due to an increasing subscriber base. As of June 30, 2024, Sezzle had 462,000 active subscribers across Anywhere and Premium platforms.

Management raised the top and bottom-line outlook for 2024. It expects total revenue growth of 35-40% compared with the 25% mentioned earlier. Earnings per share are expected to be $9.25 compared with the $5.00 stated earlier. The Zacks Consensus Estimate for 2024 earnings is pegged at $6.71 per share, unchanged in the past seven days. The company has a Growth Score of B.

Angi is a platform that connects homeowners with home service professionals. In the last reported quarter, ANGI’s monetized transactions per service request increased 20% to 1.37. International revenues were up 14% due to increasing service professional network and higher revenue-per-service-professional.

The Zacks Consensus Estimate for 2024 earnings is pegged at 1 cent per share, improving from a loss of 1 cent in the past 60 days. ANGI has a Growth Score of A and a trailing four-quarter earnings surprise of 129.2%, 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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