Guru Analysis
GRUPO FINANCIERO GALICIA S.A. (ADR) |
| Strategy: Contrarian Investor
Based on: David Dreman |
| Grupo Financiero Galicia S.A. (Grupo Financiero Galicia) is a financial services holding company. The Company's segments include Banking, Regional Credit Cards, CFA, Insurance and Other Grupo Galicia Businesses. Banco de Galicia y Buenos Aires S.A. (Banco Galicia) is a subsidiary of the Company. Its banking business segment represents Banco Galicia consolidated line by line with Banco Galicia Uruguay S.A. (Galicia Uruguay). It operates the regional credit cards segment through Tarjetas Regionales S.A. and its subsidiaries. Its CFA business segment extends unsecured personal loans to low and middle-income segments of the Argentine population. The Company operates the insurance segment through Sudamericana Holding S.A. and its subsidiaries. Its Other Grupo Galicia Businesses segment includes the results of Galicia Warrants S.A., Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion and Net Investment S.A. |
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. GGAL has a market cap of $2,969 million, therefore passing the test.
EARNINGS TREND: PASS
A company should show a rising trend in the reported earnings for the most recent quarters. GGAL's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.07, 0.70 have been increasing, and therefore the company passes this test.
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. GGAL passes this test as its EPS growth rate over the past 6 months (900.00%) has beaten that of the S&P (23.23%). GGAL's estimated EPS growth for the current year is (1,222.73%), which indicates the company is expected to experience positive earnings growth. As a result, GGAL passes this test.
This methodology would utilize four separate criteria to determine if GGAL 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. GGAL's P/E of 11.12, based on trailing 12 month earnings, meets the bottom 20% criterion (below 12.22), and therefore passes this test.
PRICE/CASH FLOW (P/CF) RATIO: PASS
The P/CF of a company should be in the bottom 20% of the overall market. GGAL's P/CF of 6.84 meets the bottom 20% criterion (below 7.07) and therefore passes 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. GGAL's P/B is currently 3.36, which does not meet the bottom 20% criterion (below 0.94), 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%). GGAL's P/D of 357.14 does not meet the bottom 20% criterion (below 19.57), 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.
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 GGAL is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout.
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 16.03%, and would consider anything over 27% to be staggering. The ROE for GGAL of 35.42% 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. GGAL's pre-tax profit margin is 25.66%, thus passing this criterion.
YIELD: FAIL
The company in question should have a yield that is high and that can be maintained or increased. GGAL's current yield is 0.28%, while the market yield is 2.81%. GGAL fails this test. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Banco Macro S.A. 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 Limited, Macro Securities S.A., Macro Fiducia S.A. and Macro Fondos S.G.F.C.I. S.A. 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. |
DETERMINE THE CLASSIFICATION:
This methodology would consider BMA a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (10.51) relative to the growth rate (43.98%), 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 BMA (0.24) is very favorable.
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. BMA, whose sales are $1,681.6 million, needs to have a P/E below 40 to pass this criterion. BMA's P/E of (10.51) is considered acceptable.
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 BMA is 44.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.
TOTAL DEBT/EQUITY RATIO: NEUTRAL
BMA is a financial company so debt to equity rules are not applied to determine the company's financial soundness.
EQUITY/ASSETS RATIO: PASS
This methodology uses the Equity/Assets Ratio as a way to determine a financial intermediary's health, as it is a better measure than the Debt/Equity Ratio. BMA's Equity/Assets ratio (15.00%) is very healthy and above the minimum 5% this methodology looks for, thus passing the criterion.
RETURN ON ASSETS: PASS
This methodology uses Return on Assets as a way to measure a financial intermediary's profitability. BMA's ROA (5.82%) is above the minimum 1% that this methodology looks for, thus passing the criterion.
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 BMA (6.33%) 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 BMA (-1.51%) 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 |
| Tractor Supply Company is an operator of rural lifestyle retail stores in the United States. The Company operates in the retail sale of products that support the rural lifestyle segment. The Company focuses on supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. It operates over 1,490 retail stores in over 50 states under the names Tractor Supply Company, Del's Feed & Farm Supply and HomeTown Pet. It also operates a Website under the name TractorSupply.com. The Company's stores offer merchandise, which includes equine, livestock, pet and small animal products; hardware, truck, towing and tool products; seasonal products, including heating, lawn and garden items, power equipment, gifts and toys; work/recreational clothing and footwear, and maintenance products for agricultural and rural use. The Company's products are offered under various brands, which include 4health, Blue Mountain and Countyline. |
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. TSCO's P/E is 20.79, based on trailing 12 month earnings, while the current market PE is 14.00. 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. TSCO's revenue growth is 10.49%, while it's earnings growth rate is 18.92%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, TSCO 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 (4.5%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (4.5%) of the current year. Sales growth for the prior must be greater than the latter. For TSCO 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. TSCO's EPS ($0.67) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. TSCO's EPS for this quarter last year ($0.64) 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. TSCO's growth rate of 4.69% 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 TSCO is 9.46%. This should be less than the growth rates for the 3 previous quarters which are 1.23%, 19.05% and 3.57%. TSCO 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: FAIL
If the growth rate of the prior three quarter's earnings, 5.53%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 4.69%, (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 TSCO is 4.7%, and it would therefore fail this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: FAIL
The EPS growth rate for the current quarter, 4.69% must be greater than or equal to the historical growth which is 18.92%. Since this is not the case TSCO would therefore fail 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. TSCO, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 1.51, 1.90, 2.32, 2.66 and 3.00, 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. TSCO's long-term growth rate of 18.92%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: PASS
A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. TSCO's Debt/Equity (21.94%) is not considered high relative to its industry (479.28%) and 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 TSCO, this criterion has not been met (insider sell transactions are 192, while insiders buying number 290). Despite the lack of an insider buy signal, there also is not an insider sell signal, so the stock passes this criterion. |
AMTRUST FINANCIAL SERVICES INC |
| Strategy: Patient Investor
Based on: Warren Buffett |
| Amtrust Financial Services, Inc. (AmTrust) is an insurance holding company. The Company, through its subsidiaries, provides specialty property and casualty insurance focusing on workers' compensation and commercial package coverage for small business, specialty risk and extended warranty coverage, and property and casualty coverage for middle market business. Its segments include Small Commercial Business, Specialty Risk and Extended Warranty, and Specialty Program. The Small Commercial Business segment is engaged in providing workers' compensation, commercial package and other commercial insurance lines produced by wholesale agents, retail agents and brokers in the United States. The Specialty Risk and Extended Warranty segment is engaged in providing coverage for consumer and commercial goods and custom designed coverages. The Specialty Program segment is engaged in writing commercial insurance for defined classes of insureds through general and other wholesale agents. |
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 0.39, 0.68, 0.62, 0.78, 0.97, 1.14, 1.17, 1.78, 2.72, 2.80. Buffett would consider AFSI'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 8.8%. AFSI's long term historical EPS growth rate is 22.8%, based on the 10 year average EPS growth rate, and it is expected to grow earnings 11.0% per year in the future, based on the analysts' consensus estimated long term growth rate. For the purposes of our analysis, we will use the more conservative of the two EPS growth numbers.
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 AFSI, over the last ten years, is 18.3%, 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 15.2%, 22.8%, 20.9%, 17.9%, 17.8%, 17.0%, 15.1%, 18.5%, 20.8%, 16.9%, and the average ROE over the last 3 years is 18.7%, 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 AFSI, 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 4.2%, 3.8%, 2.6%, 3.0%, 3.1%, 2.6%, 2.3%, 2.4%, 3.1%, 2.9%, 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. AFSI's free cash flow per share of $4.20 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 $11.11 and compares it to the gain in EPS over the same period of $2.41. AFSI's management has proven it can earn shareholders a 21.7% 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. AFSI's shares outstanding have fallen in the current year from 175,919,998 to 173,000,000, 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 AFSI 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 $2.80 and divide it by the current market price of $25.44. An investor, purchasing AFSI, could expect to receive a 11.01% initial rate of return. Furthermore, he or she could expect the rate to increase 11.0% per year, based on the analysts' consensus estimated long term 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 2.25%. Compare this with AFSI's initial yield of 11.01%, which will expand at an annual rate of 11.0%, based on the analysts' consensus estimated long term 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]
AFSI currently has a book value of $15.14. It is safe to say that if AFSI can preserve its average rate of return on equity of 18.3% and continues to retain 83.82% of its earnings, it will be able to sustain an earnings growth rate of 15.3% and it will have a book value of $63.04 in ten years. If it can still earn 18.3% on equity in ten years, then expected EPS will be $11.53.
CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]
Now take the expected future EPS of $11.53 and multiply them by the lower of the 5 year average P/E ratio (10.2) or current P/E ratio (current P/E in this case), which is 9.1 and you get AFSI's projected future stock price of $104.58.
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 $8.41. This gives you a total dollar amount of $112.99. These numbers indicate that one could expect to make a 16.1% average annual return on AFSI'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 11.0%, based on the analysts' consensus estimated long term growth rate, you can project EPS in ten years to be $7.95. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (10.2) or current P/E ratio (current P/E in this case), which is 9.1. This equals the future stock price of $72.11. Add in the total expected dividend pool of $8.41 to get a total dollar amount of $80.52.
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 $25.44 and the future expected stock price, including the dividend pool, of $80.52. If you were to invest in AFSI at this time, you could expect a 12.21% average annual return on your money. Buffett likes to see a 15% return, but nonetheless would accept this 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 12.2% and 16.1%. 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 14.1% on AFSI stock for the next ten years, based on the current fundamentals. Buffett likes to see a 15% return, but nonetheless would accept this return, thus passing the criterion. |
JOHN B. SANFILIPPO & SON, INC. |
| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| John B. Sanfilippo & Son, Inc. is a processor and distributor of peanuts, pecans, cashews, walnuts, almonds and other nuts. The Company offers nuts under a range of private brands and under the Fisher, Orchard Valley Harvest, Fisher Nut Exactly and Sunshine Country brand names. The Company also markets and distributes a diverse product line of food and snack products, including snack mixes, salad toppings, snacks, snack bites, trail mixes, dried fruit, and chocolate and yogurt coated products under private brands and brand names. The Company's principal products are raw and processed nuts. The Company's nut product line includes black walnuts, English walnuts, macadamia nuts, pistachios, pine nuts, Brazil nuts and filberts. The Company's products are sold through various distribution channels to buyers of nuts, including food retailers, commercial ingredient users, contract packaging customers and international customers. |
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. JBSS's P/S of 0.70 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. JBSS's Debt/Equity of 14.66% is acceptable, thus passing the test.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. JBSS is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.
PRELIMINARY GRADE: Some Interest in JBSS At this Point
Is JBSS a "Super Stock"? NO
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.JBSS's P/S ratio of 0.70 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.
LONG-TERM EPS GROWTH RATE: PASS
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. JBSS's inflation adjusted EPS growth rate of 25.70% passes the test.
FREE CASH PER SHARE: PASS
This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. JBSS's free cash per share of 4.57 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. JBSS, whose three year net profit margin averages 3.29%, fails this evaluation.
|
| Strategy: Value Investor
Based on: Benjamin Graham |
| Drew Industries Incorporated, through its subsidiaries, supplies an array of components in the United States and abroad for the manufacturers of recreational vehicles (RVs) and manufactured homes. The Company also supplies components for adjacent industries, including buses; trailers used to haul boats, livestock, equipment and other cargo; pontoon boats; modular housing, and mobile office units. It operates in two segments, which include the recreational vehicle products segment (the RV Segment), and the manufactured housing products segment (the MH Segment). RVs are motorized (motorhomes) or towable, such as travel trailers, fifth-wheel travel trailers, folding camping trailers and truck campers. It manufactures and distributes a range of products used primarily in the production of RVs and manufactured homes, such as electronic components, windows, slide-out mechanisms and solutions, furniture and mattresses, chassis components, and thermoformed bath, kitchen and other products. |
SECTOR: PASS
DW 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. DW's sales of $1,610.2 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. DW's current ratio of 2.44 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 DW is $49.9 million, while the net current assets are $221.2 million. DW 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. DW's EPS growth over that period of 60.9% 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. DW's P/E of 17.54 (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. DW's Price/Book ratio is 3.90, while the P/E is 17.54. DW fails the Price/Book test. |
WABASH NATIONAL CORPORATION |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Wabash National Corporation is engaged in designing, manufacturing and marketing standard and customized truck and tank trailers, intermodal equipment and transportation related products. The Company's segments include Commercial Trailer Products, Diversified Products, Retail, and Corporate and Eliminations. The Commercial Trailer Products segment manufactures standard and customized van and platform trailers. The Commercial Trailer Products segment produces and sells new trailers to the Retail segment and to customers who purchase trailers directly from the Company or through independent dealers. The Diversified Products segment focuses to expand its customer base, and diversify its product offerings and revenues. The Retail segment includes the sale of new and used trailers, as well as the sale of after-market parts and service, through its retail branch network. It offers products under the brand names, including Walker Transport, Brenner Tank, DuraPlate and Beall Trailers. |
DETERMINE THE CLASSIFICATION:
This methodology would consider WNC a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (5.54) relative to the growth rate (30.48%), based on the average of the 3 and 4 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 WNC (0.18) is very favorable.
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. WNC, whose sales are $1,927.1 million, needs to have a P/E below 40 to pass this criterion. WNC's P/E of (5.54) 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 WNC was 9.51% last year, while for this year it is 8.24%. Since inventory to sales has decreased from last year by -1.27%, WNC 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 WNC is 30.5%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for WNC (56.86%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for WNC should be good enough to compensate.
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 WNC (14.84%) 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 WNC (-14.15%) 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 |
| Insteel Industries, Inc. (Insteel) is a manufacturer of steel wire reinforcing products for concrete construction applications. The Company manufactures and markets PC strand and welded wire reinforcement (WWR), including Engineered Structural Mesh (ESM), concrete pipe reinforcement (CPR) and standard welded wire reinforcement (SWWR). The Company's products are sold to manufacturers of concrete products that are used in nonresidential construction. Insteel has two wholly owned subsidiaries, Insteel Wire Products Company (IWP), an operating subsidiary, and Intercontinental Metals Corporation, an inactive subsidiary. The Company's concrete reinforcing products consist of PC strand and WWR. PC strand provides reinforcement for bridges, parking decks, buildings and other concrete structures. Welded Wire Reinforcement produces engineered reinforcing product for use in nonresidential and residential construction. |
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. IIIN's P/E is 13.66, based on trailing 12 month earnings, while the current market PE is 14.00. 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. IIIN's revenue growth is 4.16%, while it's earnings growth rate is 77.55%, based on the average of the 3 and 4 year historical eps growth rates. Therefore, IIIN 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 (-12.7%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-1.2%) of the current year. Sales growth for the prior must be greater than the latter. For IIIN 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. IIIN's EPS ($0.51) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. IIIN's EPS for this quarter last year ($0.51) 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. IIIN's growth rate of 0.00% 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 IIIN is 38.77%. This should be less than the growth rates for the 3 previous quarters, which are 63.64%, 171.43%, and 144.83%. IIIN 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: FAIL
If the growth rate of the prior three quarter's earnings, 123.08%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 0.00%, (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 IIIN is 0.0%, and it would therefore fail this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: FAIL
The EPS growth rate for the current quarter, 0.00% must be greater than or equal to the historical growth which is 77.55%. Since this is not the case IIIN would therefore fail 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. IIIN, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.10, 0.64, 0.89, 1.16 and 1.96, 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. IIIN's long-term growth rate of 77.55%, based on the average of the 3 and 4 year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: PASS
A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. IIIN's Debt/Equity (0.00%) is not considered high relative to its industry (103.35%) and 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 IIIN, this criterion has not been met (insider sell transactions are 171, while insiders buying number 161). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion. |
VALERO ENERGY CORPORATION |
| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| Valero Energy Corporation (Valero), through Valero Energy Partners LP (VLP), owns, operates, develops and acquires crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. The Company operates in two segments: refining and ethanol. Its refining segment includes refining and marketing operations in the United States, Canada, the United Kingdom, Aruba and Ireland. Its ethanol segment includes ethanol and marketing operations in the United States. VLP's assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. Its refineries can produce conventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined products. |
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. VLO's P/S of 0.36 based on trailing 12 month sales, is below 0.75 which is considered quite attractive. It passes this methodology's P/S ratio test with flying colors.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. VLO's Debt/Equity of 36.59% is acceptable, thus passing the test.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. VLO is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.
PRELIMINARY GRADE: Some Interest in VLO At this Point
Is VLO a "Super Stock"? NO
PRICE/SALES RATIO: PASS
The prospective company should have a low Price/Sales ratio. Non-cyclical(non-Smokestack) companies with Price/Sales ratios below .75 are tremendous values and should be sought.VLO's P/S ratio of 0.36 is below .75 which is considered extremely attractive. It passes this methodology's P/S ratio test with flying colors.
LONG-TERM EPS GROWTH RATE: PASS
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. VLO's inflation adjusted EPS growth rate of 21.41% passes the test.
FREE CASH PER SHARE: PASS
This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. VLO's free cash per share of 6.29 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: FAIL
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. VLO, whose three year net profit margin averages 3.09%, fails this evaluation.
|
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Jones Lang LaSalle Incorporated (JLL) is a financial and professional services firm specializing in real estate. The Company operates through four business segments: Americas; Europe, Middle East and Africa (EMEA); Asia Pacific, and LaSalle. JLL provides real estate services (RES) through three business segments: the Americas, EMEA and Asia Pacific. Its range of real estate services include agency leasing, capital markets, corporate finance, energy and sustainability services, facility management outsourcing (occupiers), investment management, lease administration, logistics and supply-chain management, mortgage origination and servicing, project and development management/construction, property management (investors), real estate investment banking/merchant banking, research, strategic consulting and advisory services, tenant representation, transaction management, valuations and value recovery and receivership services. |
DETERMINE THE CLASSIFICATION:
This methodology would consider JLL a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (11.58) relative to the growth rate (25.71%), 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 JLL (0.45) is very favorable.
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. JLL, whose sales are $6,533.0 million, needs to have a P/E below 40 to pass this criterion. JLL's P/E of (11.58) is considered acceptable.
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 JLL is 25.7%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for JLL (50.49%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for JLL should be good enough to compensate.
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 JLL (5.00%) 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 JLL (-27.96%) 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. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| BWLD |
BUFFALO WILD WINGS |
Restaurants |
63% |
| STS |
SUPREME INDUSTRIES, INC. |
Auto & Truck Manufacturers |
59% |
| USNA |
USANA HEALTH SCIENCES, INC. |
Conglomerates |
52% |
| AGX |
ARGAN, INC. |
Construction Services |
52% |
| SWHC |
SMITH & WESSON HOLDING CORP |
Recreational Products |
43% |
| TJX |
TJX COMPANIES INC |
Retail (Apparel) |
43% |
| CPLA |
CAPELLA EDUCATION COMPANY |
Schools |
38% |
| PII |
POLARIS INDUSTRIES INC. |
Recreational Products |
37% |
| TARO |
TARO PHARMACEUTICAL INDUSTRIES LTD. |
Biotechnology & Drugs |
37% |
| FIZZ |
NATIONAL BEVERAGE CORP. |
Beverages (Non-Alcoholic) |
36% |
|
