Guru Analysis
| Strategy: Growth Investor
Based on: Martin Zweig |
| Credit Acceptance Corporation offers financing programs that enable automobile dealers to sell vehicles to consumers. The Company's financing programs are offered through a network of automobile dealers. The Company has two Dealers financing programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, the Company advances money to dealers (Dealer Loan) in exchange for the right to service the underlying consumer loans. Under the Purchase Program, the Company buys the consumer loans from the dealers (Purchased Loan) and keeps the amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. As of December 31, 2016, the Company's target market included approximately 60,000 independent and franchised automobile dealers in the United States. The Company has market area managers located throughout the United States that market its programs to dealers, enroll new dealers and support active dealers. |
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. CACC's P/E is 14.87, based on trailing 12 month earnings, while the current market PE is 12.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
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. CACC's revenue growth is 14.91%, while it's earnings growth rate is 24.99%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, CACC fails this criterion.
SALES GROWTH RATE: PASS
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 (19.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (19.3%) of the current year. Sales growth for the prior must be greater than the latter. For CACC this criterion has been met.
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. CACC's EPS ($8.65) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. CACC's EPS for this quarter last year ($6.17) 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. CACC's growth rate of 40.19% 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 CACC is 12.49%. This should be less than the growth rates for the 3 previous quarters which are 52.46%, 49.33% and -45.44%. CACC 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, -4.88%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 40.19%, (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, 40.19% must be greater than or equal to the historical growth which is 24.99%. CACC 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. CACC, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 11.92, 14.28, 16.31, 29.14 and 29.39, 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. CACC's long-term growth rate of 24.99%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For CACC, this criterion has not been met (insider sell transactions are 1, while insiders buying number 11). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| NK Lukoil PAO is an energy company. The primary activities of LUKOIL and its subsidiaries are oil exploration, production, refining, marketing and distribution. Its segments include Exploration and Production; Refining, Marketing and Distribution, and Corporate and other. The Exploration and Production segment includes its exploration, development and production operations related to crude oil and gas. These activities are located within Russia, with additional activities in Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, Northern and Western Africa, Norway, Romania and Mexico. The Refining, Marketing and Distribution segment includes refining, petrochemical and transport operations, marketing and trading of crude oil, natural gas and refined products, generation, transportation and sales of electricity, heat and related services. The Corporate and other segment includes operations related to finance activities, production of diamonds and certain other activities. |
MARKET CAP: PASS
The Cornerstone Value Strategy looks for large, well known companies whose market cap is greater than $1 billion. These companies exhibit solid and stable earnings. LUKOY's market cap of $63,994 million passes this test.
CASH FLOW PER SHARE: PASS
The second criterion requires that the company exhibit strong cash flows. Companies with strong cash flow are typically the value oriented investments that this strategy looks for. The company's cash flow per share must be greater than the mean of the market cash flow per share ($1.88). LUKOY's cash flow per share of $21.57 passes this test.
SHARES OUTSTANDING: PASS
This particular strategy looks for companies whose total number of outstanding shares are in excess of the market average (600 million shares). These are the more well known and highly traded companies. LUKOY, who has 709 million shares outstanding, passes this test.
TRAILING 12 MONTH SALES: PASS
A company's trailing 12 month sales ($130,940 million) are required to be 1.5 times greater than the mean of the market's trailing 12 month sales ($23,928 million). LUKOY passes this test.
DIVIDEND: PASS
The final step in the Cornerstone Value strategy is to select the 50 companies from the market leaders group (those that have passed the previous four criteria) that have the highest dividend yield. LUKOY, with a dividend yield of 4.56%, is one of the 50 companies that satisfy this last criterion. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Foot Locker, Inc. is a retailer of shoes and apparel. The Company operates through two segments: Athletic Stores and Direct-to-Customers. The Company is an athletic footwear and apparel retailer, which include businesses, such as include Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep and SIX:02. The Direct-to-Customers segment is multi-branded and sells directly to customers through Internet and mobile sites and catalogs. The Direct-to-Customers segment operates the Websites for eastbay.com, final-score.com, eastbayteamsales.com and sp24.com. Additionally, this segment includes the Websites, both desktop and mobile, aligned with the brand names of its store banners (footlocker.com, ladyfootlocker.com, six02.com kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, runnerspoint.com and sidestep-shoes.com). |
DETERMINE THE CLASSIFICATION:
According to this methodology, FL is a "Slow Grower", based on its single digit earnings growth of 6.49%, based on the average of the 3, 4 and 5 year historical eps growth rates.
SALES: PASS
FL would fall into the "Dividend Payers" category according to this methodology. The first requirement of a Slow Grower is that its sales exceed one billion. FL's sales are $7,992 million. It passes the test.
YIELD COMPARED TO THE S&P 500: PASS
This methodology also maintains that the Yield of a "Slow Grower" should be high, which includes being higher than the S&P average (currently 2.45%), and at least 3%. This yield is required because dividends are the main reason for investing in "Slow Growers". The yield for FL is 3.70% so it passes this test.
YIELD ADJUSTED P/E/GROWTH (PEG) RATIO: PASS
This methodology would consider the Yield-adjusted P/E/G ratio for FL of 0.89, based on the average of the 3, 4 and 5 year historical eps growth rates, to be good.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for FL (4.73%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.
FREE CASH FLOW: NEUTRAL
The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for FL (9.14%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: NEUTRAL
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for FL (16.53%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| Banco Macro SA is an Argnetina-based financial institution (the Bank) that offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. In addition, the Bank performs certain transactions through its subsidiaries, including mainly Banco del Tucuman, Macro Bank Ltd, Macro Securities SA, Macro Fiducia SA and Macro Fondos SGFCI SA. It has approximately two categories of customers, such as retail customers, including individuals and entrepreneurs and corporate customers, which include small, medium and large companies and major corporations. In addition, it provides services to over four provincial governments. It provides its corporate customers with traditional banking products and services, such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management 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 10.02, based on trailing 12 month earnings, while the current market PE is 12.00. 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 46.49%, while it's earnings growth rate is 41.35%, 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 (83.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (115.2%) 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 ($2.69) 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 ($0.11) 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 2,345.45% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
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 20.67%. This should be less than the growth rates for the 3 previous quarters, which are 44.44%, 72.73%, and 116.67%. BMA passes this test, which means that it has 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, 81.25%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 2,345.45%, (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, 2,345.45% must be greater than or equal to the historical growth which is 41.35%. 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 0.14, 0.20, 0.26, 0.37 and 0.55, 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 41.35%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For BMA, this criterion has not been met (insider sell transactions are 0, while insiders buying number 0). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Monster Beverage Corporation develops, markets, sells and distributes energy drink beverages, sodas and/or concentrates for energy drink beverages, primarily under various brand names, including Monster Energy, Monster Rehab, Monster Energy Extra Strength Nitrous Technology, Java Monster, Muscle Monster, Mega Monster Energy, Punch Monster, Juice Monster, Ubermonster, BU, Mutant Super Soda, Nalu, NOS, Burn, Mother, Ultra, Play and Power Play, Gladiator, Relentless, Samurai, BPM and Full Throttle. The Company has three segments: Monster Energy Drinks segment, which consists of its Monster Energy drinks, as well as Mutant Super Soda drinks; Strategic Brands segment, which includes various energy drink brands owned through The Coca-Cola Company (TCCC), and Other segment (Other), which includes the American Fruits & Flavors (AFF) third-party products. The Strategic Brands segment sells concentrates and/or beverage bases to authorized bottling and canning operations. |
DETERMINE THE CLASSIFICATION:
This methodology would consider MNST a "fast-grower".
P/E/GROWTH RATIO: FAIL
The investor should examine the P/E (34.09) relative to the growth rate (20.74%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for MNST (1.64) is too high to add to the attractiveness of the stock.
SALES AND P/E RATIO: PASS
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. MNST, whose sales are $3,902.3 million, needs to have a P/E below 40 to pass this criterion. MNST's P/E of (34.09) is considered acceptable.
INVENTORY TO SALES: PASS
When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for MNST was 7.59% last year, while for this year it is 7.29%. Since inventory to sales has decreased from last year by -0.30%, MNST passes this test.
EPS GROWTH RATE: PASS
This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for MNST is 20.7%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered very good.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for MNST (0.02%) to be exceptionally low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.
FREE CASH FLOW: NEUTRAL
The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for MNST (3.07%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: NEUTRAL
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for MNST (2.75%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. |
LPL FINANCIAL HOLDINGS INC |
| Strategy: Growth Investor
Based on: Martin Zweig |
| LPL Financial Holdings Inc. is a broker-dealer, a custodian for registered investment advisors and an independent consultant to retirement plans. The Company provides a platform of brokerage and investment advisory services to independent financial advisors, including financial advisors at financial institutions across the country. It also supported approximately 4,000 financial advisors, affiliated and licensed with insurance companies through customized clearing services, advisory platforms and technology solutions, as of December 31, 2016. Through its advisors, it is a distributor of financial products and services in the United States. It provides its technology and service to advisors through a technology platform that is server-based and Web-accessible. Its technology offerings are designed to permit its advisors to manage various aspects of their businesses. It automates time-consuming processes, such as account opening and management, document imaging and account rebalancing. |
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. LPLA's P/E is 14.21, based on trailing 12 month earnings, while the current market PE is 12.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
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. LPLA's revenue growth is 5.19%, while it's earnings growth rate is 30.77%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, LPLA fails 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 (10.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (18%) of the current year. Sales growth for the prior must be greater than the latter. For LPLA 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. LPLA's EPS ($1.79) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. LPLA's EPS for this quarter last year ($1.01) 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. LPLA's growth rate of 77.23% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
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 LPLA is 15.39%. This should be less than the growth rates for the 3 previous quarters, which are 75.68%, 88.89%, and 126.67%. LPLA passes this test, which means that it has 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, 95.43%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 77.23%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for LPLA is 77.2%, and it would therefore pass this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 77.23% must be greater than or equal to the historical growth which is 30.77%. LPLA would therefore pass this test.
EARNINGS PERSISTENCE: FAIL
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. LPLA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.75, 1.74, 2.13, 2.50, and 4.85, fails 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. LPLA's long-term growth rate of 30.77%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For LPLA, this criterion has not been met (insider sell transactions are 12, while insiders buying number 38). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| EMCOR Group, Inc. is an electrical and mechanical construction, and facilities services firm in the United States. The Company provides building services and industrial services. Its segments are United States electrical construction and facilities services; United States mechanical construction and facilities services; United States building services; United States industrial services, and United Kingdom building services. As of December 31, 2016, its services were provided to a range of commercial, industrial, utility and institutional customers through approximately 75 operating subsidiaries and joint venture entities. It is providing construction services relating to electrical and mechanical systems in various types of non-residential and certain residential facilities, and in providing services relating to the operation, maintenance and management of facilities, including refineries and petrochemical plants. It operates various electrical and mechanical systems. |
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. EME, with a market cap of $4,834 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. EME, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 2.58, 2.72, 3.02, 3.16 and 4.89, 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. EME's Price/Sales ratio of 0.58, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: PASS
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. EME, whose relative strength is 76, is in the top 50 and would pass this last criterion. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| MasterCard Incorporated is a technology company that connects consumers, financial institutions, merchants, governments and businesses across the world, enabling them to use electronic forms of payment. The Company operates through Payment Solutions segment. The Company allows user to make payments by creating a range of payment solutions and services using its brands, which include MasterCard, Maestro and Cirrus. The Company provides a range of products and solutions that support payment products, which customers can offer to their cardholders. The Company's services facilitate transactions on its network among cardholders, merchants, financial institutions and governments. The Company's products include consumer credit and charge, commercial, debit, prepaid, commercial and digital. The Company's consumer credit and charge offers a range of programs that enables issuers to provide consumers with cards allowing users to defer payment. |
P/E RATIO: FAIL
The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. MA's P/E is 44.15, based on trailing 12 month earnings, while the current market P/E is 12.00. Therefore, it fails the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
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. MA's revenue growth is 13.37%, while it's earnings growth rate is 16.71%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, MA fails 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 (8.6%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (14.9%) of the current year. Sales growth for the prior must be greater than the latter. For MA 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. MA's EPS ($1.80) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. MA's EPS for this quarter last year ($1.41) 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. MA's growth rate of 27.66% 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 MA is 8.36%. This should be less than the growth rates for the 3 previous quarters which are 36.36%, 35.82% and -15.96%. MA 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, 21.60%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 27.66%, (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, 27.66% must be greater than or equal to the historical growth which is 16.71%. MA 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. MA, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 3.09, 3.35, 3.69, 4.38 and 5.52, 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. MA's long-term growth rate of 16.71%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For MA, this criterion has not been met (insider sell transactions are 10, while insiders buying number 17). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| D.R. Horton, Inc. is a homebuilding company. The Company has operations in 84 markets in 29 states across the United States. The Company's segments include its 44 homebuilding divisions, its financial services operations and its other business activities. In the homebuilding segment, the Company builds and sells single-family detached homes and attached homes, such as town homes, duplexes, triplexes and condominiums. The Company's 44 homebuilding divisions are aggregated into six segments: East Region, South Central Region, Midwest Region, West Region, Southwest Region and Southeast Region. In the financial services segment, the Company sells mortgages and collects fees for title insurance agency and closing services. The Company has subsidiaries that conduct insurance-related operations; construct and own income-producing rental properties; own non-residential real estate, including ranch land and improvements, and own and operate oil and gas-related assets. |
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. DHI, with a market cap of $16,129 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. DHI, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 1.46, 2.03, 2.36, 2.74 and 4.09, 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. DHI's Price/Sales ratio of 0.97, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: PASS
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. DHI, whose relative strength is 72, is in the top 50 and would pass this last criterion. |
BBVA BANCO FRANCES S.A. (ADR) |
| Strategy: Patient Investor
Based on: Warren Buffett |
| BBVA Banco Frances S.A. (the Bank) is a provider of financial services to large corporations, small and medium-size companies (SMEs), as well as individual customers. The Bank is focused on the financial sector, through its activities related to banking/financial, pension fund manager and insurance. The Bank has all its operations, property and customers located in Argentina. As part of its business, the Bank conducts capital markets and securities operations directly in the over-the-counter market and indirectly in Bolsa de Comercio de Buenos Aires (BCBA). Its corporate banking is divided by industry, such as consumer, heavy industries and energy. The Bank's business lines include Retail Banking, Enterprise Banking, and Corporate and Investment Banking. Enterprise Banking offers both short- and long-term financing. The Corporate and Investment Banking business line is concerned with foreign trade transactions, and advice in mergers and acquisitions and in capital market transactions. |
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 0.04, 0.04, 0.03, 0.07, 0.09, 0.14, 0.16, 0.16, 0.18, 0.36. Buffett would consider BBAR's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 8 years ago. The dips have totaled 25.0%. BBAR's long term historical EPS growth rate is 24.6%, based on the 10 year average EPS growth rate.
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 BBAR, over the last ten years, is 25.5%, which is high enough to pass. 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 35.0%, 21.8%, 18.1%, 30.0%, 28.4%, 30.9%, 27.6%, 22.1%, 16.1%, 24.9%, and the average ROE over the last 3 years is 21.0%, thus passing this criterion.
LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON ASSETS: PASS
Buffett also requires, for financial companies, that the average Return On Assets (ROA) be at least 1% and consistent. Return On Assets is defined as the net earnings of the business divided by the total assets of the business. The average ROA for BBAR, over the last ten years, is 3.0%, which is high enough to pass. It is not enough that the average be at least 1%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROA must be at least 1% for Buffett to feel comfortable that the ROA is consistent. The ROA for the last 10 years, from earliest to latest, is 3.9%, 2.5%, 1.8%, 3.4%, 3.5%, 4.3%, 3.4%, 2.4%, 2.3%, 2.7%, 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. BBAR's free cash flow per share of $3.60 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 $1.14 and compares it to the gain in EPS over the same period of $0.32. BBAR's management has proven it can earn shareholders a 28.2% 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. BBAR's shares outstanding have fallen over the past five years from 536,880,005 to 204,000,000, 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 BBAR 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 $1.62 and divide it by the current market price of $11.19. An investor, purchasing BBAR, could expect to receive a 14.48% initial rate of return. Furthermore, he or she could expect the rate to increase 24.6% per year, based on the 10 year average EPS growth rate, 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 3.25%. Compare this with BBAR's initial yield of 14.48%, which will expand at an annual rate of 24.6%, based on the 10 year average EPS growth rate. 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]
BBAR currently has a book value of $5.11. It is safe to say that if BBAR can preserve its average rate of return on equity of 21.0% and continues to retain 90.14% of its earnings, it will be able to sustain an earnings growth rate of 19.0% and it will have a book value of $29.02 in ten years. If it can still earn 21.0% on equity in ten years, then expected EPS will be $6.11.
CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]
Now take the expected future EPS of $6.11 and multiply them by the lower of the 5 year average P/E ratio (11.8) or current P/E ratio (current P/E in this case), which is 6.9 and you get BBAR's projected future stock price of $42.26.
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 $6.48. This gives you a total dollar amount of $48.74. These numbers indicate that one could expect to make a 15.9% average annual return on BBAR's stock at the present time. Buffett would consider this a great return.
CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail]
If you take the EPS growth of 24.6%, based on the 10 year average EPS growth rate, you can project EPS in ten years to be $14.58. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (11.8) or current P/E ratio (current P/E in this case), which is 6.9. This equals the future stock price of $100.89. Add in the total expected dividend pool of $6.48 to get a total dollar amount of $107.37.
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 $11.19 and the future expected stock price, including the dividend pool, of $107.37. If you were to invest in BBAR at this time, you could expect a 25.37% average annual return on your money. Buffett would consider this an exceptional 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 15.9% and 25.4%. 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 20.6% on BBAR stock for the next ten years, based on the current fundamentals. Buffett would consider this a great return, thus passing the criterion. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| TEF |
TELEFONICA S.A. (ADR) |
Communications Services |
50% |
| CRTO |
CRITEO SA (ADR) |
Advertising |
49% |
| AYI |
ACUITY BRANDS, INC. |
Furniture & Fixtures |
48% |
| PAYS |
PAYSIGN INC |
Business Services |
48% |
| NSSC |
NAPCO SECURITY TECHNOLOGIES INC |
Security Systems & Services |
45% |
| SKX |
SKECHERS USA INC |
Footwear |
42% |
| AMTD |
TD AMERITRADE HOLDING CORP. |
Investment Services |
42% |
| CRVL |
CORVEL CORPORATION |
Healthcare Facilities |
42% |
| DECK |
DECKERS OUTDOOR CORP |
Footwear |
42% |
| ATH |
ATHENE HOLDING LTD |
Insurance (Life) |
41% |
|
