Liquidity reflects a company's ability to meet its short-term financial obligations and is an important indicator of financial health. Companies with healthy liquidity levels are generally better positioned to support day-to-day operations, navigate economic uncertainties and capitalize on growth opportunities, making them attractive investment candidates.
However, liquidity should not be viewed in isolation. While strong liquidity underscores financial stability, an excessively high level may indicate that a company is not deploying its assets efficiently. Idle cash or underutilized resources can weigh on profitability and limit long-term growth prospects. Therefore, investors should evaluate liquidity alongside operational efficiency when screening for potential outperformers. Companies that strike the right balance between maintaining adequate liquidity and efficiently utilizing their assets are often better equipped to generate sustainable growth and deliver superior shareholder returns. Argan, Inc. AGX, Ciena Corporation CIEN, Dillard's, Inc. DDS, and Semtech Corporation SMTC meet the criteria and are solid investment bets.
A balanced assessment of both liquidity and efficiency can help identify truly promising investment opportunities.
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, 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 it 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 that of their industry can be considered efficient.
We added our proprietary Growth 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: A higher asset utilization than the industry average indicates a company’s efficiency.
Zacks Rank equal to #1 (Strong Buy): 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 14.
Here are four of the 14 stocks that qualified the screen:
Argan offers comprehensive construction and related services to the power industry through its operations at Gemma Power Systems and Atlantic Projects.
Driven by favorable project timings in the Power segment, AGX reported first-quarter fiscal 2027 revenues of $291 million, up 50% year over year. It ended the quarter with a backlog of $2.8 billion. The Power segment remained the top contributor, accounting for 78% of total revenues.
Increasing demand for energy infrastructure, driven by electrification trends, data center expansion, electric vehicles and grid reliability needs, is creating strong opportunities, positioning Argan well for long-term growth. The company expects to add a “handful” of new projects over the next 10-18 months and believes it can execute 10-12 concurrent jobs.
The Zacks Consensus Estimate for AGX’s fiscal 2027 earnings is $12.60 per share, unchanged over the past seven days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 40.49%, on average.
Headquartered in Hanover, MD, Ciena is a leading provider of optical networking equipment, software and services.
Fiscal second-quarter 2026 revenues rose 39.5% year over year to $1.57 billion, driven by cloud demand and higher adoption of optical networking solutions.
Networking Platforms remained the largest contributor, generating $1.27 billion in revenues and representing 81.1% of total sales. Within the segment, Optical Networking revenues increased to $1.10 billion from $773.6 million a year ago, while Routing and Switching revenues advanced to $174.2 million from $92.7 million.
For third-quarter fiscal 2026, management expects revenues of $1.625 billion (+/- $50 million). Adjusted gross margin is projected at 45% (+/-50 bps), while adjusted operating margin is expected between 19% and 20%.
The Zacks Consensus Estimate for CIEN’s fiscal 2026 earnings is pegged at $6.52 per share, unchanged in the past seven days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 19.45%, on average.
Based in Little Rock, AR, Dillard's is a large departmental store chain featuring fashion apparel and home furnishings.
Net sales in first-quarter fiscal 2026 rose 2.6% year over year to $1.57 billion. Retail sales improved 3% year over year, with the company noting that all merchandise categories posted gains compared with the prior-year period.
The Zacks Consensus Estimate for DDS’ fiscal 2026 earnings is $35.26 per share, unchanged over the past seven days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 27.89%, on average.
Headquartered in Flynn Road Camarillo, CA, Semtech designs, manufactures and markets a wide range of analog and mixed-signal semiconductors for commercial applications.
Net sales in first-quarter fiscal 2027 surged 16% year over year to $291 million. Sales from the infrastructure market totaled $98.8 million (33.9% of net sales), exhibiting year-over-year growth of 36%, supported by the expanding data center business. A key highlight was record data center net sales of $71.6 million, rising 39% year over year, reflecting continued strength in high-speed interconnect solutions.
The Zacks Consensus Estimate for SMTC’s fiscal 2027 earnings is pegged at $2.66 per share, unchanged over the past seven days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 6.81%, on average.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.7% average gain per year. Amazingly, they soared with average gains of +48.4%, +50.2% and +56.7% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Dillard's, Inc. (DDS): Free Stock Analysis Report
Ciena Corporation (CIEN): Free Stock Analysis Report
Semtech Corporation (SMTC): Free Stock Analysis Report
Argan, Inc. (AGX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).