NVIDIA Ranks First on This Screen for S&P 500 Growth Stocks. See Which Other Companies Have Joined or Left the List.

A year ago, we conducted a screening of the S&P 500 to identify companies projected to experience the most rapid increases in sales, profits, and free cash flow over the subsequent two years. This screening relied on estimates provided by analysts working for brokerage firms. Now, it's time to update these numbers for a fresh list.

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When screening stocks, investors and analysts have the option to look back, anticipate future performance, or combine both approaches to narrow down a list before delving into individual companies. A recent comparison of five-year returns for groups of stocks selected through backward-looking screens versus analysts' ratings and price targets yielded an interesting result, suggesting the validity of both methods.

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In today's stock screen, we will focus on future projections while also assessing the performance of stocks selected using the same criteria from a year ago.

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The New Screen:This screen of the S&P 500 mirrors the criteria used in a previous screening conducted in late March of the previous year, with estimates now focused on a year later. Here's how we narrowed down the large-cap benchmark index:

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We utilized consensus estimates for calendar years 2023, 2024, and 2025 to ensure uniform data. Approximately 20% of S&P 500 companies operate on fiscal years that do not align with the calendar, and some even have fiscal month-ends that differ. Thus, even the 2023 data are estimations based on actual financial reports from the period.Companies lacking consensus estimates or showing negative projections for earnings or free cash flow per share for any year were excluded, resulting in a list of 322 companies. Free cash flow represents a company's remaining cash flow after capital expenditures and can be utilized for expansion, dividends, share repurchases, or other corporate endeavors benefiting shareholders. Most companies in the financial sector do not provide free cash flow estimates.Further narrowing down was done for companies with projected compound annual growth rates (CAGR) of at least 15% for sales, 10% for earnings per share (EPS), and 10% for free cash flow per share (FCF) from 2023 through 2025, resulting in a list of 11 companies.While the number of qualifying companies remains the same as last year, only three companies from the previous list made it onto this year's list. More information about last year's list is provided below.

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It's important to note that this approach is tailored for aggressive long-term growth investors, serving as a preliminary step to focus on large-cap U.S. stocks before conducting individual research and forming opinions on their competitive viability over the next decade.

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Nvidia Corp. (NVDA), ServiceNow Inc. (NOW), and DexCom Inc. (DXCM) retained their positions from last year's list, while Tesla Inc. (TSLA) dropped off due to missing targeted CAGR estimates for sales and EPS growth through 2025, despite showing an impressive expected FCF CAGR. Further details about the previous list and the performance of those stocks since its compilation are provided below.

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Additionally, here is additional information about the new list, including forward price-to-earnings ratios based on consensus EPS estimates for the next 12 months and a summary of analysts' opinions. As noted last year, this method tends to yield a list with forward P/E ratios that generally appear high relative to the S&P 500, which trades for a weighted 20.5 times consensus earnings estimates among analysts polled by FactSet.

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Last Year's Screen:Reflecting on the results from the same screening of the S&P 500 conducted late in March of the prior year, here's how the group of 11 stocks fared in the current screening. The list is maintained in the same order as last year, sorted by expected sales CAGR through calendar 2024 at that time. The update incorporates price changes from March 25, 2023 (the last close before data for last year's list was gathered) through the latest available date. The three bolded companies are those also present on the new list.

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Tesla, which ranked second on last year's list, missed this year's cutoff due to projected sales CAGR through 2025 falling below 15% and expected EPS CAGR below 10%, despite its anticipated FCF CAGR significantly exceeding the 10% threshold for the screen.

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Take-Two Interactive Software Inc. didn't meet this year's criteria due to negative FCF during calendar 2023.

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Dayforce Inc. narrowly missed inclusion on the new list, falling short of the 15% threshold for projected sales CAGR. The company was previously known as Ceridian HCM Holding Inc.

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Looking at price changes since March 25, 2023, the average increase for this group through the latest available date was 22%, while the S&P 500 rose 29%, excluding dividends. Only two companies—ServiceNow and Nvidia—exhibited price increases surpassing that of the index.

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While one year may not provide a comprehensive measure of success for a list derived from projected two-year growth rates, it illustrates the shifting expectations and challenges associated with using estimates to screen stocks.

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