Guru Analysis
| Strategy: Contrarian Investor Based on: David Dreman |
Cal-Maine Foods, Inc. is a producer and marketer of shell eggs in the United States. The Company's primary business is the production, grading, packaging, marketing and distribution of shell eggs. The Company sells its shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. The Company markets its shell eggs through its distribution network to a group of customers, including national and regional grocery store chains, club stores, foodservice distributors and egg product consumers. Some of its sales are completed through co-pack agreements. It has a total flock of approximately 33.7 million layers and 8.4 million pullets and breeders. The Company markets its specialty shell eggs under brands, such as Egg-Land's Best, Land O' Lakes, Farmhouse and 4-Grain. The Company also produces, markets and distributes private label specialty shell eggs to several customers. |
MARKET CAP: PASS
Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. CALM has a market cap of $2,624 million, therefore passing the test.
EARNINGS TREND: FAIL
A company should show a rising trend in the reported earnings for the most recent quarters. CALM's EPS for the latest quarter is not greater than the prior quarter, (from earliest to most recent quarter) 2.95, 2.26. Hence the stock fails this test, but the investor should evaluate this company qualitatively to see if it qualifies under this methodology's "exception rule".
EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS
This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. CALM passes this test as its EPS growth rate over the past 6 months (137.89%) has beaten that of the S&P (-1.33%). CALM's estimated EPS growth for the current year is (131.83%), which indicates the company is expected to experience positive earnings growth. As a result, CALM passes this test.
This methodology would utilize four separate criteria to determine if CALM is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".
P/E RATIO: PASS
The P/E of a company should be in the bottom 20% of the overall market. CALM's P/E of 7.51, based on trailing 12 month earnings, meets the bottom 20% criterion (below 10.85), and therefore passes this test.
PRICE/CASH FLOW (P/CF) RATIO: FAIL
The P/CF of a company should be in the bottom 20% of the overall market. CALM's P/CF of 6.66 does not meet the bottom 20% criterion (below 5.74), and therefore fails this test.
PRICE/BOOK (P/B) VALUE: FAIL
The P/B value of a company should be in the bottom 20% of the overall market. CALM's P/B is currently 3.01, which does not meet the bottom 20% criterion (below 0.82), and it therefore fails this test.
PRICE/DIVIDEND (P/D) RATIO: FAIL
The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). CALM's P/D of 20.41 does not meet the bottom 20% criterion (below 17.06), and it therefore fails this test.
This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.
CURRENT RATIO: PASS
A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [3.92] or greater than 2). This is one identifier of financially strong companies, according to this methodology. CALM's current ratio of 3.02 passes the test.
PAYOUT RATIO: PASS
A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for CALM is 33.35%, while its historical payout ratio has been 33.50%. Therefore, it passes the payout criterion.
RETURN ON EQUITY: PASS
The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 16.52%, and would consider anything over 27% to be staggering. The ROE for CALM of 46.24% is high enough to pass this criterion.
PRE-TAX PROFIT MARGINS: PASS
This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. CALM's pre-tax profit margin is 26.84%, thus passing this criterion.
YIELD: PASS
The company in question should have a yield that is high and that can be maintained or increased. CALM's current yield is 4.90%, while the market yield is 2.92%. CALM passes this test.
LOOK AT THE TOTAL DEBT/EQUITY: PASS
The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 25.56%. CALM's Total Debt/Equity of 3.30% is considered acceptable. |
| Strategy: Growth Investor Based on: Martin Zweig |
Banco Macro S.A. (the Bank) is a bank. The Bank offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. The Bank offers savings and checking accounts, credit and debit cards, consumer finance loans (including personal loans), mortgage loans, automobile loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, automatic teller machines (ATMs) and money transfers. The Bank offers Plan Sueldo payroll services, lending, corporate credit cards, mortgage finance, transaction processing and foreign exchange. The Bank offers transaction services to its corporate customers, such as cash management, customer collections, payments to suppliers, payroll administration, foreign exchange transactions, foreign trade services, corporate credit cards and information services, such as its Datanet and Interpymes services. |
P/E RATIO: PASS
The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. BMA's P/E is 12.83, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. BMA's revenue growth is 42.07%, while it's earnings growth rate is 44.21%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, BMA passes this criterion.
SALES GROWTH RATE: FAIL
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (35.9%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (79%) of the current year. Sales growth for the prior must be greater than the latter. For BMA this criterion has not been met and fails this test.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. BMA's EPS ($2.19) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. BMA's EPS for this quarter last year ($0.13) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. BMA's growth rate of 1,584.62% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for BMA is 22.10%. This should be less than the growth rates for the 3 previous quarters which are 25.00%, 18.18% and 214.29%. BMA does not pass this test, which means that it does not have good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 73.08%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 1,584.62%, (versus the same quarter one year ago) then the stock passes.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 1,584.62% must be greater than or equal to the historical growth which is 44.21%. BMA would therefore pass this test.
EARNINGS PERSISTENCE: PASS
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. BMA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.13, 0.18, 0.27, 0.40 and 0.57, passes this test.
LONG-TERM EPS GROWTH: PASS
One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. BMA's long-term growth rate of 44.21%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. |
ALTISOURCE PORTFOLIO SOLUTIONS S.A. |
| Strategy: Small-Cap Growth Investor Based on: Motley Fool |
Altisource Portfolio Solutions S.A. is a provider of marketplace and transaction solutions for the real estate, mortgage and consumer debt industries offering both distribution and content. The Company operates in three segments: Mortgage Services, Financial Services and Technology Services. The Company's Mortgage Services segment provides services that span the mortgage and real estate lifecycle, and are outsourced by loan servicers, loan originators, investors and other sellers of single family homes. The Financial Services segment provides collection and customer relationship management services to debt originators and servicers, and the utility, insurance and hotel industries. The Company's Technology Services consists of REALSuite of software applications, Equator, LLC (Equator) software applications, Mortgage Builder software applications and its information technology (IT) infrastructure management services. |
PROFIT MARGIN: PASS
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. ASPS's profit margin of 8.51% passes this test.
RELATIVE STRENGTH: PASS
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. ASPS, with a relative strength of 94, satisfies this test.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: FAIL
Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for ASPS (1.68% for EPS, and -5.18% for Sales) are not good enough to pass.
INSIDER HOLDINGS: FAIL
ASPS's insiders should own at least 10% (they own 0.42%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive.
CASH FLOW FROM OPERATIONS: PASS
A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. ASPS's free cash flow of $5.61 per share passes this test.
PROFIT MARGIN CONSISTENCY: FAIL
The profit margin in the past must be consistently increasing. The profit margin of ASPS has been inconsistent in the past three years (Current year: 12.46%, Last year: 16.92%, Two years ago: 19.46%), which is unacceptable. This inconsistency will carryover directly to the company's bottom line, or earnings per share.
R&D AS A PERCENTAGE OF SALES: NEUTRAL
This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in ASPS's case.
CASH AND CASH EQUIVALENTS: PASS
ASPS's level of cash $161.4 million passes this criteria. If a company is a cash generator, like ASPS, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.
ACCOUNT RECEIVABLE TO SALES: PASS
This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for ASPS was 13.85% last year, while for this year it is 10.88%. Since the AR to sales is decreasing by -2.97% the stock passes this criterion.
"THE FOOL RATIO" (P/E TO GROWTH): PASS
The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (ASPS's is 0.26), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. ASPS passes this test.
The following criteria for ASPS are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
ASPS has not been significantly increasing the number of shares outstanding within recent years which is a good sign. ASPS currently has 20.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.
SALES: FAIL
Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. ASPS's sales of $1,037.5 million based on trailing 12 month sales, are too high and would therefore fail the test. It is companies with $500 million or less in sales that are most likely to double or triple in size in the next few years.
DAILY DOLLAR VOLUME: PASS
ASPS passes the Daily Dollar Volume (DDV of $18.3 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf."
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. ASPS with a price of $35.69 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.
INCOME TAX PERCENTAGE: FAIL
ASPS's income tax paid expressed as a percentage of pretax income either this year (6.91%) or last year (6.00%) is below 20% which is cause for concern. Because the tax rate is below 20% this could mean that the earnings that were reported are unrealistically inflated due to the lower level of income tax paid. However, we have utilized a sophisticated formula so that the appropriate figures reflect a 'normal' tax rate (35%). |
LUMBER LIQUIDATORS HOLDINGS INC |
| Strategy: Value Investor Based on: Benjamin Graham |
Lumber Liquidators Holdings, Inc. (Lumber Liquidators) is a retailer of hardwood flooring, and hardwood flooring enhancements and accessories in North America. The Company's product categories include Solid and Engineered Hardwood; Laminate; Bamboo, Cork and Vinyl Plank, and Moldings and Accessories. The Company sells its products primarily to homeowners or to contractors on behalf of homeowners. The Company offers wood flooring under18 brand names, led by Bellawood, a collection of solid and engineered hardwood flooring, bamboo flooring, moldings and accessories. The Company also offers a range of flooring enhancements and installation accessories, including moldings, noise-reducing underlay and tools. It offers around 400 different flooring product stock-keeping units. As of February 23, 2015, Lumber Liquidators operated around 354 stores located in 46 states of the United States and nine store locations in Canada. |
SECTOR: PASS
LL is neither a technology nor financial Company, and therefore this methodology is applicable.
SALES: PASS
The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. LL's sales of $1,015.9 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: PASS
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. LL's current ratio of 2.55 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: PASS
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for LL is $0.0 million, while the net current assets are $205.1 million. LL passes this test.
LONG-TERM EPS GROWTH: PASS
Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. LL's EPS growth over that period of 436.5% passes the EPS growth test.
P/E RATIO: PASS
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. LL's P/E of 5.00 (using the 3 year PE) passes this test.
PRICE/BOOK RATIO: PASS
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. LL's Price/Book ratio is 1.03, while the P/E is 5.00. LL passes the Price/Book test. |
| Strategy: Patient Investor Based on: Warren Buffett |
Dril-Quip, Inc. designs, manufactures, sells and services engineered offshore drilling and production equipment. The Company's equipment is suited for use in deepwater, harsh environments and service applications. The Company's operates in Western Hemisphere, including North and South America; Eastern Hemisphere, including Europe and Africa and Asia-Pacific, including the Pacific Rim, Southeast Asia, Australia, India and the Middle East. It products include subsea equipment, surface equipment and offshore rig equipment. Its products are used to explore for oil and gas from offshore drilling rigs, such as floating rigs and jack-up rigs, and for drilling and production of oil and gas wells on offshore platforms, TLPs, Spars and moored vessels, such as FPSOs. Its services include technical advisory assistance services, reconditioning of its customer-owned products, and rental of running tools for installation and retrieval of its products. |
STAGE 1: "Is this a Buffett type company?"
A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage.
LOOK FOR EARNINGS PREDICTABILITY: PASS
Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.90, 2.15, 2.63, 2.62, 2.66, 2.55, 2.36, 2.94, 4.16, 5.19. Buffett would consider DRQ's earnings predictable, although earnings have declined 3 time(s) in the past seven years, with the most recent decline 4 years ago. The dips have totaled 12.0%. DRQ's long term historical EPS growth rate is 21.1%, based on the average of the 3, 4 and 5 year historical eps growth rates.
LOOK AT THE ABILITY TO PAY OFF DEBT PASS
Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. DRQ has no long term debt and therefore would pass this criterion.
LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: PASS
Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for DRQ, over the last ten years, is 14.4%. Although he prefers ROE to be 15% or higher, this level is acceptable to Buffett. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 10.5%, 18.6%, 18.1%, 18.3%, 15.0%, 12.3%, 10.3%, 11.2%, 13.7%, 16.2%, and the average ROE over the last 3 years is 13.7%, thus passing this criterion.
LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: PASS
Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for DRQ, over the last ten years, is 14.4% and the average ROTC over the past 3 years is 13.7%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 10.4%, 18.5%, 18.1%, 18.3%, 15.0%, 12.3%, 10.3%, 11.2%, 13.7%, 16.2%, thus passing this criterion.
LOOK AT CAPITAL EXPENDITURES: PASS
Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. DRQ's free cash flow per share of $2.66 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion.
LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: PASS
Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $28.16 and compares it to the gain in EPS over the same period of $4.29. DRQ's management has proven it can earn shareholders a 15.2% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work.
HAS THE COMPANY BEEN BUYING BACK SHARES: BONUS PASS
Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. DRQ's shares outstanding have fallen over the past five years from 40,040,001 to 39,000,000, thus passing this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed.
The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate DRQ quantitatively.
STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return.
CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail]
Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $5.20 and divide it by the current market price of $49.99. An investor, purchasing DRQ, could expect to receive a 10.40% initial rate of return. Furthermore, he or she could expect the rate to increase 21.1% per year, based on the average of the 3, 4 and 5 year historical eps growth rates, as this is how fast earnings are growing.
COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: PASS
Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.25%. Compare this with DRQ's initial yield of 10.40%, which will expand at an annual rate of 21.1%, based on the average of the 3, 4 and 5 year historical eps growth rates. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding.
CALCULATE THE FUTURE EPS: [No Pass/Fail]
DRQ currently has a book value of $34.24. It is safe to say that if DRQ can preserve its average rate of return on equity of 13.7% and continues to retain 100.00% of its earnings, it will be able to sustain an earnings growth rate of 13.7% and it will have a book value of $123.52 in ten years. If it can still earn 13.7% on equity in ten years, then expected EPS will be $16.91.
CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]
Now take the expected future EPS of $16.91 and multiply them by the lower of the 5 year average P/E ratio (23.4) or current P/E ratio (current P/E in this case), which is 9.6 and you get DRQ's projected future stock price of $162.51.
CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]
Now add in the total expected dividend pool to be paid over the next ten years, which is $0.00. This gives you a total dollar amount of $162.51. These numbers indicate that one could expect to make a 12.5% average annual return on DRQ's stock at the present time. Although, the return is slightly below the liking of Buffett, the return would still be somewhat acceptable.
CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail]
If you take the EPS growth of 21.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, you can project EPS in ten years to be $35.41. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (23.4) or current P/E ratio (current P/E in this case), which is 9.6. This equals the future stock price of $340.28. Add in the total expected dividend pool of $0.00 to get a total dollar amount of $340.28.
CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail]
Now you can figure out your expected return based on a current price of $49.99 and the future expected stock price, including the dividend pool, of $340.28. If you were to invest in DRQ at this time, you could expect a 21.14% average annual return on your money. Buffett would consider this a great return.
LOOK AT THE RANGE OF EXPECTED RATE OF RETURN: PASS
Based on the two different methods, you could expect an annual compounding rate of return somewhere between 12.5% and 21.1%. To pinpoint the average return a little better, we have taken an average of the two different methods. Investors could expect an average return of 16.8% on DRQ stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion. |
| Strategy: Value Investor Based on: Benjamin Graham |
Sanderson Farms, Inc. is a poultry processing company which is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and other prepared chicken items. In addition, the Company is engaged in the processing, marketing and distribution of prepared chicken through its wholly owned subsidiary, Sanderson Farms, Inc. (Foods Division). It produces a range of processed chicken products and prepared chicken items. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, and casual dining operators in the south-eastern, south-western, north-eastern and western United States and to customers who resell frozen chicken into export markets. During the fiscal year ended October 31, 2013 (fiscal 2013), it processed 452 million chickens, or over 3.0 billion dressed pounds. |
SECTOR: PASS
SAFM is neither a technology nor financial Company, and therefore this methodology is applicable.
SALES: PASS
The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. SAFM's sales of $2,741.3 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: PASS
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. SAFM's current ratio of 4.31 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: PASS
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for SAFM is $0.0 million, while the net current assets are $434.8 million. SAFM passes this test.
LONG-TERM EPS GROWTH: FAIL
Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for SAFM were negative within the last 5 years and therefore the company fails this criterion.
P/E RATIO: PASS
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. SAFM's P/E of 12.40 (using the current PE) passes this test.
PRICE/BOOK RATIO: FAIL
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. SAFM's Price/Book ratio is 1.93, while the P/E is 12.40. SAFM fails the Price/Book test. |
| Strategy: Growth/Value Investor Based on: James P. O'Shaughnessy |
Thor Industries, Inc. (Thor), manufactures and sells various recreational vehicles (RV) throughout the United States and Canada, as well as related parts and accessories. The principal types of The Company's towable recreational vehicles that the Company produces include conventional travel trailers and fifth wheels. In addition, it also produces truck and folding campers and equestrian, and other specialty towable recreational vehicles, as well as Class A, Class C and Class B motorhomes. The Company operates through two segments: towable recreational vehicles and motorized recreational vehicles. The Company through its operating subsidiaries manufactures recreational vehicles in North America. The subsidiaries are Airstream, Inc., CrossRoads RV, Thor Motor Coach, Inc., Keystone RV Company, Heartland Recreational Vehicles, LLC, Livin' Lite RV, Inc., Bison Coach, K.Z., Inc. and Postle Operating, LLC. |
MARKET CAP: PASS
The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. THO, with a market cap of $2,902 million, passes this criterion.
EARNINGS PER SHARE PERSISTENCE: PASS
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. THO, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.66, 2.07, 2.86, 3.29 and 3.79, passes this test.
PRICE/SALES RATIO: PASS
The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. THO's Price/Sales ratio of 0.70, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: FAIL
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. THO has a relative strength of 60. This does not pass the final criterion. As a result, this methodology would not consider the stock even though it passed the previous three criteria. |
| Strategy: Value Investor Based on: Benjamin Graham |
Zumiez Inc. is a multi-channel specialty retailer of apparel, footwear, accessories and hardgoods. As of January 31, 2015, the Company operated 603 stores; 550 in the United States, 35 in Canada and 18 in Europe. The Company operates under the names Zumiez and Blue Tomato. Additionally, it operates e-commerce websites at www.zumiez.com and www.bluetomato.com. In apparel the Company offers t-shirts; baseball tees; hoodies and sweatshirts; tank tops; shorts; board shorts; joggers; shirts; jackets; jeans and pants; sweaters, and snow outerwear. The Company offers accessories, including hats, socks, watches, sunglasses, jewelry, backpacks, beanies, belts, wallets, underwear and bags. In addition it also offers cameras and tech; headphones; home; travel gear; hacky sacks; shoe laces; digital video discs (DVDs), scarves and gloves. |
SECTOR: PASS
ZUMZ is neither a technology nor financial Company, and therefore this methodology is applicable.
SALES: PASS
The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. ZUMZ's sales of $820.3 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: PASS
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. ZUMZ's current ratio of 2.48 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: PASS
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for ZUMZ is $0.0 million, while the net current assets are $131.5 million. ZUMZ passes this test.
LONG-TERM EPS GROWTH: PASS
Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. ZUMZ's EPS growth over that period of 193.9% passes the EPS growth test.
P/E RATIO: FAIL
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. ZUMZ's P/E of 17.85 (using the current PE) fails this test.
PRICE/BOOK RATIO: FAIL
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. ZUMZ's Price/Book ratio is 1.85, while the P/E is 17.85. ZUMZ fails the Price/Book test. |
OCEANEERING INTERNATIONAL |
| Strategy: Value Investor Based on: Benjamin Graham |
Oceaneering International, Inc. is an oilfield provider of engineered services and products to the offshore oil and gas industry, with a focus on deep water applications. The Company's business segments are contained within two businesses, such as services and products provided to the oil and gas industry (Oilfield) and all other services and products (Advanced Technologies). The Company's four business segments within the Oil and Gas business includes Remotely Operated Vehicles (ROVs), Subsea Products, Subsea Projects and Asset Integrity. The Company also provides remote asset management software services. The Company provides services and products, such as remotely operated vehicles, specialty subsea hardware, engineering and project management, subsea intervention services, including manned diving, and asset integrity and non-destructive testing services. The Company's foreign operations are principally focused in the North Sea, Africa, Brazil, Australia and Asia. |
SECTOR: PASS
OII is neither a technology nor financial Company, and therefore this methodology is applicable.
SALES: PASS
The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. OII's sales of $3,062.8 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: PASS
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. OII's current ratio of 2.46 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: PASS
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for OII is $795.8 million, while the net current assets are $901.5 million. OII passes this test.
LONG-TERM EPS GROWTH: PASS
Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. OII's EPS growth over that period of 191.3% passes the EPS growth test.
P/E RATIO: PASS
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. OII's P/E of 11.22 (using the current PE) passes this test.
PRICE/BOOK RATIO: PASS
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. OII's Price/Book ratio is 1.62, while the P/E is 11.22. OII passes the Price/Book test. |
FORUM ENERGY TECHNOLOGIES INC |
| Strategy: Value Investor Based on: Benjamin Graham |
Forum Energy Technologies, Inc. is an oilfield products company. The Company designs, manufactures and distributes products and engages in aftermarket services, parts supply and related services. Its product offering includes a mix of engineered capital products and replaced items that are used in the exploration, development, production and transportation of oil and natural gas. Its capital products are targeted at drilling rig equipment for rigs, upgrades and refurbishment projects; subsea construction and development projects; the placement of production equipment on producing wells, and downstream capital projects. Its engineered systems are components used on drilling rigs or in the course of subsea operations, while its consumable products are used to maintain operations at well sites in the well construction process, within the supporting infrastructure and at processing centers and refineries. Its segments are Drilling & Subsea and Production & Infrastructure. |
SECTOR: PASS
FET is neither a technology nor financial Company, and therefore this methodology is applicable.
SALES: PASS
The investor must select companies of "adequate size". This includes companies with annual sales greater than $340 million. FET's sales of $1,073.7 million, based on trailing 12 month sales, pass this test.
CURRENT RATIO: PASS
The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. FET's current ratio of 4.78 passes the test.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: PASS
For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt for FET is $396.0 million, while the net current assets are $568.0 million. FET passes this test.
LONG-TERM EPS GROWTH: FAIL
Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for FET were negative within the last 5 years and therefore the company fails this criterion.
P/E RATIO: FAIL
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. FET's P/E of 16.10 (using the 3 year PE) fails this test.
PRICE/BOOK RATIO: PASS
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. FET's Price/Book ratio is 0.72, while the P/E is 16.10. FET passes the Price/Book test. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
Ticker |
Company Name |
Industry |
Current Score |
FL |
FOOT LOCKER, INC. |
Retail (Apparel) |
84% |
OXM |
OXFORD INDUSTRIES INC |
Apparel/Accessories |
77% |
JBSS |
JOHN B. SANFILIPPO & SON, INC. |
Food Processing |
62% |
AFSI |
AMTRUST FINANCIAL SERVICES INC |
Insurance (Prop. & Casualty) |
62% |
WD |
WALKER & DUNLOP, INC. |
Consumer Financial Services |
58% |
UFPI |
UNIVERSAL FOREST PRODUCTS, INC. |
Forestry & Wood Products |
56% |
FIT |
FITBIT INC |
Retail (Specialty) |
55% |
IOSP |
INNOSPEC INC. |
Chemical Manufacturing |
54% |
SSL |
SASOL LIMITED (ADR) |
Chemical Manufacturing |
52% |
TBI |
TRUEBLUE INC |
Business Services |
50% |
|